Does Medigen Biotechnology (GTSM:3176) Have A Healthy Balance Sheet? – Simply Wall St

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Medigen Biotechnology Corp. (GTSM:3176) makes use of debt. But is this debt a concern to shareholders?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Medigen Biotechnology

The image below, which you can click on for greater detail, shows that at September 2020 Medigen Biotechnology had debt of NT$1.37b, up from NT$1.17b in one year. However, because it has a cash reserve of NT$887.8m, its net debt is less, at about NT$479.5m.

Zooming in on the latest balance sheet data, we can see that Medigen Biotechnology had liabilities of NT$976.6m due within 12 months and liabilities of NT$1.17b due beyond that. On the other hand, it had cash of NT$887.8m and NT$123.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$1.13b.

Since publicly traded Medigen Biotechnology shares are worth a total of NT$8.17b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Medigen Biotechnology will need earnings to service that debt. 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.

Over 12 months, Medigen Biotechnology reported revenue of NT$595m, which is a gain of 26%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Despite the top line growth, Medigen Biotechnology still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping NT$857m. 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. However, it doesn't help that it burned through NT$776m of cash over the last year. So in short it's a really risky stock. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Medigen Biotechnology's profit, revenue, and operating cashflow have changed over the last few years.

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. 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. *Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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Does Medigen Biotechnology (GTSM:3176) Have A Healthy Balance Sheet? - Simply Wall St