Would SCL Science (KOSDAQ:246960) Be Better Off With Less Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that SCL Science Inc. (KOSDAQ:246960) does use debt in its business. But should shareholders be worried about its use of debt?

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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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does SCL Science Carry?

The image below, which you can click on for greater detail, shows that at June 2025 SCL Science had debt of ₩20.2b, up from ₩4.06b in one year. However, it does have ₩10.9b in cash offsetting this, leading to net debt of about ₩9.26b.

A Look At SCL Science's Liabilities

Zooming in on the latest balance sheet data, we can see that SCL Science had liabilities of ₩11.0b due within 12 months and liabilities of ₩22.2b due beyond that. Offsetting this, it had ₩10.9b in cash and ₩8.47b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩13.8b.

Since publicly traded SCL Science shares are worth a total of ₩87.1b, 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 it is SCL Science'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.

View our latest analysis for SCL Science

Over 12 months, SCL Science reported revenue of ₩9.4b, which is a gain of 206%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Even though SCL Science managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost ₩4.9b 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩8.3b of cash over the last year. So suffice it to say we consider the stock very risky. 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. We've identified 5 warning signs with SCL Science (at least 3 which make us uncomfortable) , and understanding them should be part of your investment process.

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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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.