Is Wooree BioLtd (KOSDAQ:082850) A Risky Investment?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Wooree Bio Co.,Ltd (KOSDAQ:082850) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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.

Check out our latest analysis for Wooree BioLtd

What Is Wooree BioLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that Wooree BioLtd had ₩64.8b of debt in March 2024, down from ₩86.1b, one year before. But on the other hand it also has ₩146.5b in cash, leading to a ₩81.8b net cash position.

A Look At Wooree BioLtd's Liabilities

We can see from the most recent balance sheet that Wooree BioLtd had liabilities of ₩311.3b falling due within a year, and liabilities of ₩24.0b due beyond that. Offsetting these obligations, it had cash of ₩146.5b as well as receivables valued at ₩204.5b due within 12 months. So it actually has ₩15.8b more liquid assets than total liabilities.

This short term liquidity is a sign that Wooree BioLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Wooree BioLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

And we also note warmly that Wooree BioLtd grew its EBIT by 16% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Wooree BioLtd 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Wooree BioLtd 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. Over the last three years, Wooree BioLtd recorded free cash flow worth a fulsome 87% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Wooree BioLtd has ₩81.8b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of ₩44b, being 87% of its EBIT. So is Wooree BioLtd's debt a risk? It doesn't seem so to us. 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 example, we've discovered 1 warning sign for Wooree BioLtd 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.