BL Pharmtech (KOSDAQ:065170) Has Debt But No Earnings; Should You Worry?

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.' 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. As with many other companies BL Pharmtech Corp. (KOSDAQ:065170) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for BL Pharmtech

What Is BL Pharmtech's Net Debt?

As you can see below, BL Pharmtech had ₩3.95b of debt at June 2024, down from ₩38.2b a year prior. However, its balance sheet shows it holds ₩4.75b in cash, so it actually has ₩795.9m net cash.

How Strong Is BL Pharmtech's Balance Sheet?

We can see from the most recent balance sheet that BL Pharmtech had liabilities of ₩6.64b falling due within a year, and liabilities of ₩4.83b due beyond that. Offsetting this, it had ₩4.75b in cash and ₩1.08b in receivables that were due within 12 months. So it has liabilities totalling ₩5.65b more than its cash and near-term receivables, combined.

Given BL Pharmtech has a market capitalization of ₩38.4b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, BL Pharmtech 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 BL Pharmtech'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.

In the last year BL Pharmtech managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is BL Pharmtech?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months BL Pharmtech lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through ₩196m of cash and made a loss of ₩10b. While this does make the company a bit risky, it's important to remember it has net cash of ₩795.9m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see 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. Case in point: We've spotted 2 warning signs for BL Pharmtech you should be aware of, and 1 of them is a bit unpleasant.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.