These 4 Measures Indicate That Wooree BioLtd (KOSDAQ:082850) Is Using Debt Reasonably Well

Warren Buffett famously said, '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. We note that Wooree Bio Co.,Ltd (KOSDAQ:082850) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Wooree BioLtd

What Is Wooree BioLtd's Debt?

The image below, which you can click on for greater detail, shows that Wooree BioLtd had debt of ₩63.9b at the end of December 2023, a reduction from ₩84.2b over a year. However, its balance sheet shows it holds ₩123.7b in cash, so it actually has ₩59.8b net cash.

How Healthy Is Wooree BioLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Wooree BioLtd had liabilities of ₩317.1b due within 12 months and liabilities of ₩17.3b due beyond that. Offsetting these obligations, it had cash of ₩123.7b as well as receivables valued at ₩217.9b due within 12 months. So it can boast ₩7.17b more liquid assets than total liabilities.

This surplus suggests that Wooree BioLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Wooree BioLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

It is just as well that Wooree BioLtd's load is not too heavy, because its EBIT was down 24% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is Wooree BioLtd's earnings that will influence how the balance sheet holds up in the future. 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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 81% 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 ₩59.8b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 81% of that EBIT to free cash flow, bringing in ₩16b. So we are not troubled with Wooree BioLtd's debt use. 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. Be aware that Wooree BioLtd is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.