Health Check: How Prudently Does Aptamer Sciences (KOSDAQ:291650) 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Aptamer Sciences Inc (KOSDAQ:291650) does use debt in its business. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Aptamer Sciences

What Is Aptamer Sciences's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Aptamer Sciences had debt of ₩8.61b, up from ₩7.16b in one year. However, it does have ₩21.6b in cash offsetting this, leading to net cash of ₩13.0b.

How Strong Is Aptamer Sciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Aptamer Sciences had liabilities of ₩15.5b due within 12 months and liabilities of ₩2.05b due beyond that. Offsetting this, it had ₩21.6b in cash and ₩317.4m in receivables that were due within 12 months. So it actually has ₩4.31b more liquid assets than total liabilities.

This surplus suggests that Aptamer Sciences has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Aptamer Sciences has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Aptamer Sciences's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Aptamer Sciences had a loss before interest and tax, and actually shrunk its revenue by 43%, to ₩216m. That makes us nervous, to say the least.

So How Risky Is Aptamer Sciences?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Aptamer Sciences had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through ₩11b of cash and made a loss of ₩13b. But at least it has ₩13.0b on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 Aptamer Sciences (of which 2 are a bit unpleasant!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com