ALTEOGEN (KOSDAQ:196170) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that ALTEOGEN Inc. (KOSDAQ:196170) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for ALTEOGEN

What Is ALTEOGEN's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 ALTEOGEN had ₩5.01b of debt, an increase on ₩4.13b, over one year. But it also has ₩109.6b in cash to offset that, meaning it has ₩104.6b net cash.

A Look At ALTEOGEN's Liabilities

The latest balance sheet data shows that ALTEOGEN had liabilities of ₩21.4b due within a year, and liabilities of ₩7.50b falling due after that. Offsetting these obligations, it had cash of ₩109.6b as well as receivables valued at ₩7.76b due within 12 months. So it can boast ₩88.5b more liquid assets than total liabilities.

This state of affairs indicates that ALTEOGEN's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₩8.72t company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that ALTEOGEN 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 it is future earnings, more than anything, that will determine ALTEOGEN's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, ALTEOGEN reported revenue of ₩85b, which is a gain of 163%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is ALTEOGEN?

While ALTEOGEN lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₩6.5b. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We think its revenue growth of 163% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for ALTEOGEN (2 are a bit unpleasant!) that you should be aware of before investing here.

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.