Is OliX Pharmaceuticals (KOSDAQ:226950) Using Too Much Debt?

Warren Buffett famously said, '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 can see that OliX Pharmaceuticals, Inc (KOSDAQ:226950) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is OliX Pharmaceuticals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 OliX Pharmaceuticals had ₩45.2b of debt, an increase on ₩39.8b, over one year. However, it does have ₩11.9b in cash offsetting this, leading to net debt of about ₩33.3b.

A Look At OliX Pharmaceuticals' Liabilities

Zooming in on the latest balance sheet data, we can see that OliX Pharmaceuticals had liabilities of ₩37.6b due within 12 months and liabilities of ₩29.2b due beyond that. On the other hand, it had cash of ₩11.9b and ₩1.38b worth of receivables due within a year. So it has liabilities totalling ₩53.6b more than its cash and near-term receivables, combined.

Since publicly traded OliX Pharmaceuticals shares are worth a total of ₩755.4b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But it is OliX Pharmaceuticals'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.

View our latest analysis for OliX Pharmaceuticals

In the last year OliX Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 123%, to ₩16b. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Even though OliX Pharmaceuticals managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at ₩21b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₩35b of cash over the last year. So to be blunt we think it is 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 3 warning signs for OliX Pharmaceuticals you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.