Rock star Growth Puts Enzychem Lifesciences (KOSDAQ:183490) In A Position To Use Debt

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 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 is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Enzychem Lifesciences

How Much Debt Does Enzychem Lifesciences Carry?

The image below, which you can click on for greater detail, shows that Enzychem Lifesciences had debt of ₩4.42b at the end of December 2023, a reduction from ₩36.9b over a year. However, its balance sheet shows it holds ₩137.4b in cash, so it actually has ₩132.9b net cash.

How Healthy Is Enzychem Lifesciences' Balance Sheet?

We can see from the most recent balance sheet that Enzychem Lifesciences had liabilities of ₩14.2b falling due within a year, and liabilities of ₩2.76b due beyond that. Offsetting this, it had ₩137.4b in cash and ₩20.2b in receivables that were due within 12 months. So it actually has ₩140.6b 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! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Enzychem Lifesciences'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, Enzychem Lifesciences reported revenue of ₩76b, which is a gain of 185%, 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 Enzychem Lifesciences?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Enzychem Lifesciences lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩13b and booked a ₩9.3b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of ₩132.9b. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Enzychem Lifesciences has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. We've identified 1 warning sign with Enzychem Lifesciences , 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.