Is Cutia Therapeutics (HKG:2487) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 can see that Cutia Therapeutics (HKG:2487) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Cutia Therapeutics's Net Debt?

As you can see below, at the end of December 2024, Cutia Therapeutics had CN¥263.3m of debt, up from CN¥189.4m a year ago. Click the image for more detail. But on the other hand it also has CN¥876.2m in cash, leading to a CN¥612.9m net cash position.

How Strong Is Cutia Therapeutics' Balance Sheet?

According to the last reported balance sheet, Cutia Therapeutics had liabilities of CN¥323.3m due within 12 months, and liabilities of CN¥95.3m due beyond 12 months. Offsetting these obligations, it had cash of CN¥876.2m as well as receivables valued at CN¥104.7m due within 12 months. So it can boast CN¥562.4m more liquid assets than total liabilities.

This surplus suggests that Cutia Therapeutics is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Cutia Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Cutia Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for Cutia Therapeutics

Over 12 months, Cutia Therapeutics reported revenue of CN¥280m, which is a gain of 103%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is Cutia Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Cutia Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥469m of cash and made a loss of CN¥434m. However, it has net cash of CN¥612.9m, so it has a bit of time before it will need more capital. Importantly, Cutia Therapeutics's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. For instance, we've identified 1 warning sign for Cutia Therapeutics that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.