We Think Vivozon Pharmaceutical (KOSDAQ:082800) Has A Fair Chunk Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Vivozon Pharmaceutical Co., Ltd. (KOSDAQ:082800) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Vivozon Pharmaceutical

What Is Vivozon Pharmaceutical's Debt?

You can click the graphic below for the historical numbers, but it shows that Vivozon Pharmaceutical had ₩40.7b of debt in September 2023, down from ₩57.7b, one year before. However, it also had ₩12.2b in cash, and so its net debt is ₩28.5b.

How Healthy Is Vivozon Pharmaceutical's Balance Sheet?

According to the last reported balance sheet, Vivozon Pharmaceutical had liabilities of ₩66.3b due within 12 months, and liabilities of ₩3.31b due beyond 12 months. Offsetting these obligations, it had cash of ₩12.2b as well as receivables valued at ₩12.2b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩45.2b.

While this might seem like a lot, it is not so bad since Vivozon Pharmaceutical has a market capitalization of ₩169.9b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is Vivozon Pharmaceutical's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Vivozon Pharmaceutical wasn't profitable at an EBIT level, but managed to grow its revenue by 36%, to ₩71b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Vivozon Pharmaceutical's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping ₩17b. 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. Another cause for caution is that is bled ₩4.8b in negative free cash flow over the last twelve months. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Vivozon Pharmaceutical that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.