Is Shinpoong PharmaceuticalLtd (KRX:019170) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Shinpoong Pharmaceutical Co.,Ltd (KRX:019170) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

See our latest analysis for Shinpoong PharmaceuticalLtd

How Much Debt Does Shinpoong PharmaceuticalLtd Carry?

As you can see below, at the end of March 2024, Shinpoong PharmaceuticalLtd had ₩45.0b of debt, up from ₩30.0b a year ago. Click the image for more detail. But it also has ₩58.0b in cash to offset that, meaning it has ₩13.0b net cash.

A Look At Shinpoong PharmaceuticalLtd's Liabilities

The latest balance sheet data shows that Shinpoong PharmaceuticalLtd had liabilities of ₩74.3b due within a year, and liabilities of ₩2.92b falling due after that. On the other hand, it had cash of ₩58.0b and ₩76.5b worth of receivables due within a year. So it can boast ₩57.3b 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 you can't view debt in total isolation; since Shinpoong PharmaceuticalLtd 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, Shinpoong PharmaceuticalLtd made a loss at the EBIT level, and saw its revenue drop to ₩206b, which is a fall of 2.4%. That's not what we would hope to see.

So How Risky Is Shinpoong PharmaceuticalLtd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Shinpoong PharmaceuticalLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩35b of cash and made a loss of ₩51b. However, it has net cash of ₩13.0b, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Shinpoong PharmaceuticalLtd you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.