Stock Analysis

Is Vivozon Healthcare (KOSDAQ:082800) A Risky Investment?

KOSDAQ:A082800
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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Vivozon Healthcare, Inc. (KOSDAQ:082800) makes use of 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. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for Vivozon Healthcare

How Much Debt Does Vivozon Healthcare Carry?

The image below, which you can click on for greater detail, shows that at December 2020 Vivozon Healthcare had debt of ₩106.7b, up from ₩41.3b in one year. On the flip side, it has ₩90.7b in cash leading to net debt of about ₩16.0b.

debt-equity-history-analysis
KOSDAQ:A082800 Debt to Equity History May 6th 2021

How Strong Is Vivozon Healthcare's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Vivozon Healthcare had liabilities of ₩111.6b due within 12 months and liabilities of ₩25.0b due beyond that. On the other hand, it had cash of ₩90.7b and ₩11.5b worth of receivables due within a year. So its liabilities total ₩34.4b more than the combination of its cash and short-term receivables.

Since publicly traded Vivozon Healthcare shares are worth a total of ₩242.1b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Vivozon Healthcare will need earnings to service that debt. 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.

In the last year Vivozon Healthcare had a loss before interest and tax, and actually shrunk its revenue by 3.0%, to ₩44b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Vivozon Healthcare produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩8.0b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of ₩44b. So to be blunt we do think it is risky. 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. For instance, we've identified 3 warning signs for Vivozon Healthcare (1 doesn't sit too well with us) 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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