LigaChem Biosciences (KOSDAQ:141080) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that LigaChem Biosciences Inc. (KOSDAQ:141080) does use debt in its business. But is this debt a concern to shareholders?

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. 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.

View our latest analysis for LigaChem Biosciences

What Is LigaChem Biosciences's Debt?

The chart below, which you can click on for greater detail, shows that LigaChem Biosciences had ₩11.8b in debt in September 2024; about the same as the year before. But on the other hand it also has ₩529.9b in cash, leading to a ₩518.1b net cash position.

How Healthy Is LigaChem Biosciences' Balance Sheet?

According to the last reported balance sheet, LigaChem Biosciences had liabilities of ₩82.5b due within 12 months, and liabilities of ₩7.30b due beyond 12 months. Offsetting this, it had ₩529.9b in cash and ₩25.8b in receivables that were due within 12 months. So it can boast ₩465.9b more liquid assets than total liabilities.

This short term liquidity is a sign that LigaChem Biosciences could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that LigaChem Biosciences 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 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 ₩101b, which is a gain of 194%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

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 ₩43b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 194% is a good sign. 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. However, not all investment risk resides within the balance sheet - far from it. Be aware that LigaChem Biosciences is showing 2 warning signs in our investment analysis , you should know about...

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.