Enzychem Lifesciences (KOSDAQ:183490) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that Enzychem Lifesciences Corporation (KOSDAQ:183490) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Enzychem Lifesciences

How Much Debt Does Enzychem Lifesciences Carry?

As you can see below, Enzychem Lifesciences had ₩3.23b of debt at June 2024, down from ₩5.21b a year prior. But it also has ₩116.3b in cash to offset that, meaning it has ₩113.1b net cash.

A Look At Enzychem Lifesciences' Liabilities

Zooming in on the latest balance sheet data, we can see that Enzychem Lifesciences had liabilities of ₩11.2b due within 12 months and liabilities of ₩2.28b due beyond that. Offsetting these obligations, it had cash of ₩116.3b as well as receivables valued at ₩28.2b due within 12 months. So it actually has ₩131.1b more liquid assets than total liabilities.

This luscious liquidity implies that Enzychem Lifesciences' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Enzychem Lifesciences 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 you can't view debt in total isolation; since Enzychem Lifesciences will need earnings to service that debt. 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, Enzychem Lifesciences reported revenue of ₩85b, which is a gain of 87%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Enzychem Lifesciences?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Enzychem Lifesciences had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩9.3b and booked a ₩8.9b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩113.1b. That kitty means the company can keep spending for growth for at least two years, at current rates. Enzychem Lifesciences's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For example - Enzychem Lifesciences has 1 warning sign we think you should be aware of.

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.