Does SK Biopharmaceuticals (KRX:326030) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, SK Biopharmaceuticals Co., Ltd. (KRX:326030) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does SK Biopharmaceuticals Carry?

The image below, which you can click on for greater detail, shows that SK Biopharmaceuticals had debt of ₩75.0b at the end of March 2025, a reduction from ₩171.5b over a year. However, it does have ₩268.7b in cash offsetting this, leading to net cash of ₩193.7b.

How Strong Is SK Biopharmaceuticals' Balance Sheet?

According to the last reported balance sheet, SK Biopharmaceuticals had liabilities of ₩330.2b due within 12 months, and liabilities of ₩80.3b due beyond 12 months. Offsetting this, it had ₩268.7b in cash and ₩175.3b in receivables that were due within 12 months. So it can boast ₩33.4b more liquid assets than total liabilities.

This state of affairs indicates that SK Biopharmaceuticals' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₩7.49t company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that SK Biopharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for SK Biopharmaceuticals

It was also good to see that despite losing money on the EBIT line last year, SK Biopharmaceuticals turned things around in the last 12 months, delivering and EBIT of ₩112b. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine SK Biopharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. SK Biopharmaceuticals may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last year, SK Biopharmaceuticals produced sturdy free cash flow equating to 78% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that SK Biopharmaceuticals has net cash of ₩193.7b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of ₩88b, being 78% of its EBIT. So we don't think SK Biopharmaceuticals's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for SK Biopharmaceuticals you should know about.

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.