Is Aptamer Sciences (KOSDAQ:291650) Using Debt In A Risky Way?

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 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 Aptamer Sciences Inc (KOSDAQ:291650) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Aptamer Sciences

What Is Aptamer Sciences's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Aptamer Sciences had ₩9.45b of debt, an increase on ₩7.85b, over one year. However, it does have ₩17.0b in cash offsetting this, leading to net cash of ₩7.50b.

How Healthy Is Aptamer Sciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Aptamer Sciences had liabilities of ₩17.7b due within 12 months and liabilities of ₩2.72b due beyond that. Offsetting this, it had ₩17.0b in cash and ₩304.0m in receivables that were due within 12 months. So it has liabilities totalling ₩3.15b more than its cash and near-term receivables, combined.

Given Aptamer Sciences has a market capitalization of ₩29.7b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Aptamer Sciences 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 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's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

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. And over the same period it saw negative free cash outflow of ₩8.5b and booked a ₩9.4b accounting loss. But at least it has ₩7.50b on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Aptamer Sciences you should be aware of, and 3 of them can't be ignored.

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. 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.