Is Icure Pharmaceutical Incorporation (KOSDAQ:175250) Using Debt In A Risky Way?

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. We note that Icure Pharmaceutical Incorporation (KOSDAQ:175250) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Icure Pharmaceutical Incorporation

What Is Icure Pharmaceutical Incorporation's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Icure Pharmaceutical Incorporation had debt of ₩75.5b, up from ₩71.1b in one year. On the flip side, it has ₩6.42b in cash leading to net debt of about ₩69.1b.

How Strong Is Icure Pharmaceutical Incorporation's Balance Sheet?

We can see from the most recent balance sheet that Icure Pharmaceutical Incorporation had liabilities of ₩94.0b falling due within a year, and liabilities of ₩11.4b due beyond that. Offsetting this, it had ₩6.42b in cash and ₩10.0b in receivables that were due within 12 months. So it has liabilities totalling ₩89.0b more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of ₩76.6b, we think shareholders really should watch Icure Pharmaceutical Incorporation's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Icure Pharmaceutical Incorporation'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.

Over 12 months, Icure Pharmaceutical Incorporation made a loss at the EBIT level, and saw its revenue drop to ₩57b, which is a fall of 6.9%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Icure Pharmaceutical Incorporation produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping ₩27b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of ₩16b over the last twelve months. That means it's on the risky side of things. 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. We've identified 3 warning signs with Icure Pharmaceutical Incorporation (at least 2 which are potentially serious) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.