Does Sugentech (KOSDAQ:253840) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 note that Sugentech Inc. (KOSDAQ:253840) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Sugentech

What Is Sugentech's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Sugentech had ₩11.0b of debt in March 2024, down from ₩15.5b, one year before. However, its balance sheet shows it holds ₩62.6b in cash, so it actually has ₩51.6b net cash.

How Strong Is Sugentech's Balance Sheet?

According to the last reported balance sheet, Sugentech had liabilities of ₩13.1b due within 12 months, and liabilities of ₩2.43b due beyond 12 months. Offsetting these obligations, it had cash of ₩62.6b as well as receivables valued at ₩3.18b due within 12 months. So it actually has ₩50.3b more liquid assets than total liabilities.

This luscious liquidity implies that Sugentech's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Sugentech boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Sugentech'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.

Over 12 months, Sugentech made a loss at the EBIT level, and saw its revenue drop to ₩7.6b, which is a fall of 78%. That makes us nervous, to say the least.

So How Risky Is Sugentech?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Sugentech had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩20b of cash and made a loss of ₩16b. While this does make the company a bit risky, it's important to remember it has net cash of ₩51.6b. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Sugentech is showing 2 warning signs in our investment analysis , you should know about...

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.

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