Is MYUNGMOON PharmLtd (KRX:017180) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, MYUNGMOON Pharm co.,Ltd (KRX:017180) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for MYUNGMOON PharmLtd

What Is MYUNGMOON PharmLtd's Debt?

As you can see below, at the end of June 2024, MYUNGMOON PharmLtd had ₩92.2b of debt, up from ₩85.3b a year ago. Click the image for more detail. However, it does have ₩11.8b in cash offsetting this, leading to net debt of about ₩80.5b.

How Strong Is MYUNGMOON PharmLtd's Balance Sheet?

We can see from the most recent balance sheet that MYUNGMOON PharmLtd had liabilities of ₩90.6b falling due within a year, and liabilities of ₩63.3b due beyond that. On the other hand, it had cash of ₩11.8b and ₩40.7b worth of receivables due within a year. So its liabilities total ₩101.5b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₩67.0b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, MYUNGMOON PharmLtd would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since MYUNGMOON PharmLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, MYUNGMOON PharmLtd reported revenue of ₩176b, which is a gain of 10.0%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months MYUNGMOON PharmLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₩4.0b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩4.0b over the last twelve months. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for MYUNGMOON PharmLtd you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.