OliX PharmaceuticalsInc (KOSDAQ:226950) Is Using Debt Safely

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 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. As with many other companies OliX Pharmaceuticals,Inc (KOSDAQ:226950) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for OliX PharmaceuticalsInc

What Is OliX PharmaceuticalsInc's Net Debt?

As you can see below, at the end of December 2020, OliX PharmaceuticalsInc had ₩14.0b of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds ₩68.1b in cash, so it actually has ₩54.1b net cash.

How Strong Is OliX PharmaceuticalsInc's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that OliX PharmaceuticalsInc had liabilities of ₩4.49b due within 12 months and liabilities of ₩28.7b due beyond that. On the other hand, it had cash of ₩68.1b and ₩446.6m worth of receivables due within a year. So it actually has ₩35.3b more liquid assets than total liabilities.

This short term liquidity is a sign that OliX PharmaceuticalsInc could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, OliX PharmaceuticalsInc 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 it is OliX PharmaceuticalsInc'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.

In the last year OliX PharmaceuticalsInc wasn't profitable at an EBIT level, but managed to grow its revenue by 119%, to ₩2.5b. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is OliX PharmaceuticalsInc?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that OliX PharmaceuticalsInc had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩4.9b of cash and made a loss of ₩19b. But at least it has ₩54.1b on the balance sheet to spend on growth, near-term. The good news for shareholders is that OliX PharmaceuticalsInc has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for OliX PharmaceuticalsInc you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. 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.
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