Is Sugentech (KOSDAQ:253840) Using Too Much Debt?

Warren Buffett famously said, '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 Sugentech Inc. (KOSDAQ:253840) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sugentech's Debt?

As you can see below, Sugentech had ₩4.70b of debt at March 2025, down from ₩11.0b a year prior. However, it does have ₩50.4b in cash offsetting this, leading to net cash of ₩45.7b.

A Look At Sugentech's Liabilities

We can see from the most recent balance sheet that Sugentech had liabilities of ₩8.22b falling due within a year, and liabilities of ₩2.62b due beyond that. Offsetting this, it had ₩50.4b in cash and ₩3.12b in receivables that were due within 12 months. So it can boast ₩42.7b more liquid assets than total liabilities.

This surplus strongly suggests that Sugentech has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Sugentech has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Sugentech will need earnings to service that debt. 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.

Check out our latest analysis for Sugentech

In the last year Sugentech wasn't profitable at an EBIT level, but managed to grow its revenue by 33%, to ₩10b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Sugentech?

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 Sugentech had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩8.3b of cash and made a loss of ₩14b. While this does make the company a bit risky, it's important to remember it has net cash of ₩45.7b. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Sugentech may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Sugentech (1 is potentially serious!) that you should be aware of before investing here.

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.