Is Shinpoong PharmaceuticalLtd (KRX:019170) Using Debt Sensibly?

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, Shinpoong Pharmaceutical Co.,Ltd (KRX:019170) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Shinpoong PharmaceuticalLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Shinpoong PharmaceuticalLtd had ₩53.3b of debt, an increase on ₩45.0b, over one year. But it also has ₩56.5b in cash to offset that, meaning it has ₩3.16b net cash.

A Look At Shinpoong PharmaceuticalLtd's Liabilities

The latest balance sheet data shows that Shinpoong PharmaceuticalLtd had liabilities of ₩75.8b due within a year, and liabilities of ₩8.16b falling due after that. On the other hand, it had cash of ₩56.5b and ₩72.5b worth of receivables due within a year. So it actually has ₩45.0b more liquid assets than total liabilities.

This surplus suggests that Shinpoong PharmaceuticalLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Shinpoong PharmaceuticalLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Shinpoong PharmaceuticalLtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend .

View our latest analysis for Shinpoong PharmaceuticalLtd

In the last year Shinpoong PharmaceuticalLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 10%, to ₩221b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Shinpoong PharmaceuticalLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Shinpoong PharmaceuticalLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩21b of cash and made a loss of ₩15b. But the saving grace is the ₩3.16b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 1 warning sign for Shinpoong PharmaceuticalLtd you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.