Is AptaBio Therapeutics (KOSDAQ:293780) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that AptaBio Therapeutics Inc. (KOSDAQ:293780) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for AptaBio Therapeutics

How Much Debt Does AptaBio Therapeutics Carry?

As you can see below, at the end of March 2024, AptaBio Therapeutics had ₩14.5b of debt, up from none a year ago. Click the image for more detail. However, it does have ₩50.1b in cash offsetting this, leading to net cash of ₩35.6b.

How Strong Is AptaBio Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that AptaBio Therapeutics had liabilities of ₩1.07b due within 12 months and liabilities of ₩31.3b due beyond that. Offsetting these obligations, it had cash of ₩50.1b as well as receivables valued at ₩3.07b due within 12 months. So it can boast ₩20.8b more liquid assets than total liabilities.

This short term liquidity is a sign that AptaBio Therapeutics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, AptaBio Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since AptaBio Therapeutics will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, AptaBio Therapeutics reported revenue of ₩942m, which is a gain of 1,793%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is AptaBio Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months AptaBio Therapeutics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩15b and booked a ₩11b accounting loss. But the saving grace is the ₩35.6b on the balance sheet. That means it could keep spending at its current rate for more than two years. Importantly, AptaBio Therapeutics's revenue growth is hot to trot. 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for AptaBio Therapeutics you should be aware of, and 2 of them shouldn't be ignored.

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.

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