Does Syngen BiotechLtd (GTSM:8279) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Syngen Biotech Co.,Ltd. (GTSM:8279) makes use of debt. 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Syngen BiotechLtd

How Much Debt Does Syngen BiotechLtd Carry?

As you can see below, at the end of December 2020, Syngen BiotechLtd had NT$50.0m of debt, up from none a year ago. Click the image for more detail. However, it does have NT$423.4m in cash offsetting this, leading to net cash of NT$373.4m.

How Healthy Is Syngen BiotechLtd's Balance Sheet?

The latest balance sheet data shows that Syngen BiotechLtd had liabilities of NT$312.0m due within a year, and liabilities of NT$188.7m falling due after that. On the other hand, it had cash of NT$423.4m and NT$298.7m worth of receivables due within a year. So it actually has NT$221.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Syngen BiotechLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Syngen BiotechLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Syngen BiotechLtd has increased its EBIT by 6.7% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Syngen BiotechLtd 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Syngen BiotechLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Syngen BiotechLtd created free cash flow amounting to 10% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing up

While it is always sensible to investigate a company's debt, in this case Syngen BiotechLtd has NT$373.4m in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 6.7% in the last twelve months. So we don't have any problem with Syngen BiotechLtd's use of debt. 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. Case in point: We've spotted 2 warning signs for Syngen BiotechLtd you should be aware of, and 1 of them is a bit concerning.

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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