Here's Why LigaChem Biosciences (KOSDAQ:141080) Can Manage Its Debt Despite Losing Money

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that LigaChem Biosciences Inc. (KOSDAQ:141080) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for LigaChem Biosciences

How Much Debt Does LigaChem Biosciences Carry?

The chart below, which you can click on for greater detail, shows that LigaChem Biosciences had ₩11.8b in debt in March 2024; about the same as the year before. However, it does have ₩675.6b in cash offsetting this, leading to net cash of ₩663.8b.

How Healthy Is LigaChem Biosciences' Balance Sheet?

The latest balance sheet data shows that LigaChem Biosciences had liabilities of ₩131.3b due within a year, and liabilities of ₩6.03b falling due after that. On the other hand, it had cash of ₩675.6b and ₩14.9b worth of receivables due within a year. So it actually has ₩553.1b more liquid assets than total liabilities.

This surplus suggests that LigaChem Biosciences is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, LigaChem Biosciences boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if LigaChem Biosciences can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, LigaChem Biosciences reported revenue of ₩58b, which is a gain of 63%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is LigaChem Biosciences?

Although LigaChem Biosciences had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₩61b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 63% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with LigaChem Biosciences (at least 2 which are concerning) , and understanding them should be part of your investment process.

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.