CellumedLtd (KOSDAQ:049180) Has Debt But No Earnings; Should You Worry?

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.' 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, Cellumed Co.,Ltd. (KOSDAQ:049180) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 CellumedLtd

What Is CellumedLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 CellumedLtd had ₩11.0b of debt, an increase on ₩10.1b, over one year. However, it does have ₩12.4b in cash offsetting this, leading to net cash of ₩1.45b.

How Healthy Is CellumedLtd's Balance Sheet?

According to the last reported balance sheet, CellumedLtd had liabilities of ₩39.6b due within 12 months, and liabilities of ₩4.00b due beyond 12 months. On the other hand, it had cash of ₩12.4b and ₩23.3b worth of receivables due within a year. So its liabilities total ₩7.87b more than the combination of its cash and short-term receivables.

Since publicly traded CellumedLtd shares are worth a total of ₩71.2b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, CellumedLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is CellumedLtd'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.

Over 12 months, CellumedLtd made a loss at the EBIT level, and saw its revenue drop to ₩102b, which is a fall of 9.5%. That's not what we would hope to see.

So How Risky Is CellumedLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months CellumedLtd lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩9.2b and booked a ₩33b accounting loss. However, it has net cash of ₩1.45b, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for CellumedLtd that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.