Is CORESTEMCHEMON (KOSDAQ:166480) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies CORESTEMCHEMON Inc. (KOSDAQ:166480) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for CORESTEMCHEMON

What Is CORESTEMCHEMON's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 CORESTEMCHEMON had ₩37.1b of debt, an increase on ₩26.3b, over one year. However, it does have ₩6.00b in cash offsetting this, leading to net debt of about ₩31.1b.

A Look At CORESTEMCHEMON's Liabilities

The latest balance sheet data shows that CORESTEMCHEMON had liabilities of ₩54.9b due within a year, and liabilities of ₩21.7b falling due after that. Offsetting these obligations, it had cash of ₩6.00b as well as receivables valued at ₩4.13b due within 12 months. So its liabilities total ₩66.5b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since CORESTEMCHEMON has a market capitalization of ₩310.9b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since CORESTEMCHEMON 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.

In the last year CORESTEMCHEMON had a loss before interest and tax, and actually shrunk its revenue by 26%, to ₩30b. To be frank that doesn't bode well.

Caveat Emptor

While CORESTEMCHEMON's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩23b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩35b of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for CORESTEMCHEMON (of which 2 can't be ignored!) you should know about.

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.