Is Sugentech (KOSDAQ:253840) Weighed On By Its Debt Load?

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 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, Sugentech Inc. (KOSDAQ:253840) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Sugentech

How Much Debt Does Sugentech Carry?

As you can see below, Sugentech had ₩4.78b of debt at September 2024, down from ₩15.1b a year prior. However, it does have ₩48.8b in cash offsetting this, leading to net cash of ₩44.0b.

How Healthy Is Sugentech's Balance Sheet?

The latest balance sheet data shows that Sugentech had liabilities of ₩7.22b due within a year, and liabilities of ₩2.36b falling due after that. On the other hand, it had cash of ₩48.8b and ₩3.85b worth of receivables due within a year. So it actually has ₩43.1b 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). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Sugentech has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sugentech will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Sugentech reported revenue of ₩9.7b, which is a gain of 39%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

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. And over the same period it saw negative free cash outflow of ₩10b and booked a ₩12b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩44.0b. That kitty means the company can keep spending for growth for at least two years, at current rates. Sugentech's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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 instance, we've identified 1 warning sign for Sugentech that you should be aware of.

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.