Is SCL Science (KOSDAQ:246960) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, SCL Science Inc. (KOSDAQ:246960) does carry debt. But the more important question is: how much risk is that debt creating?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is SCL Science's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 SCL Science had ₩20.0b of debt, an increase on ₩7.67b, over one year. However, it also had ₩11.4b in cash, and so its net debt is ₩8.65b.

How Healthy Is SCL Science's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SCL Science had liabilities of ₩9.75b due within 12 months and liabilities of ₩21.3b due beyond that. Offsetting this, it had ₩11.4b in cash and ₩8.71b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩11.0b.

Of course, SCL Science has a market capitalization of ₩81.0b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is SCL Science's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for SCL Science

In the last year SCL Science wasn't profitable at an EBIT level, but managed to grow its revenue by 159%, to ₩5.9b. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, SCL Science still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost ₩4.5b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₩10b in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that SCL Science is showing 5 warning signs in our investment analysis , and 2 of those are a bit unpleasant...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.