EcoBio Holdings (KOSDAQ:038870) Is Carrying A Fair Bit 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, EcoBio Holdings Co., Ltd. (KOSDAQ:038870) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for EcoBio Holdings

What Is EcoBio Holdings's Debt?

As you can see below, EcoBio Holdings had ₩2.53b of debt at September 2020, down from ₩8.58b a year prior. On the flip side, it has ₩1.34b in cash leading to net debt of about ₩1.18b.

How Strong Is EcoBio Holdings' Balance Sheet?

We can see from the most recent balance sheet that EcoBio Holdings had liabilities of ₩4.44b falling due within a year, and liabilities of ₩1.56b due beyond that. On the other hand, it had cash of ₩1.34b and ₩19.5b worth of receivables due within a year. So it actually has ₩14.8b more liquid assets than total liabilities.

This short term liquidity is a sign that EcoBio Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Carrying virtually no net debt, EcoBio Holdings has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is EcoBio Holdings'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.

In the last year EcoBio Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 35%, to ₩17b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though EcoBio Holdings managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at ₩2.1b. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. And the cherry on top is that its actual free cash flow was ₩5.6b with statutory profit coming in at ₩6.4b. So it seems too risky for our taste. 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. Case in point: We've spotted 1 warning sign for EcoBio Holdings you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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