Is Cellid (KOSDAQ:299660) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Cellid, Co., Ltd. (KOSDAQ:299660) does carry debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Cellid

How Much Debt Does Cellid Carry?

As you can see below, Cellid had ₩10.4b of debt at September 2024, down from ₩13.1b a year prior. But it also has ₩14.1b in cash to offset that, meaning it has ₩3.67b net cash.

A Look At Cellid's Liabilities

We can see from the most recent balance sheet that Cellid had liabilities of ₩3.20b falling due within a year, and liabilities of ₩17.2b due beyond that. On the other hand, it had cash of ₩14.1b and ₩683.6m worth of receivables due within a year. So its liabilities total ₩5.58b more than the combination of its cash and short-term receivables.

Since publicly traded Cellid shares are worth a total of ₩114.2b, it seems unlikely that this level of liabilities would be a major 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, Cellid boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Cellid 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.

In the last year Cellid wasn't profitable at an EBIT level, but managed to grow its revenue by 376%, to ₩2.3b. That's virtually the hole-in-one of revenue growth!

So How Risky Is Cellid?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Cellid had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩25b and booked a ₩10b accounting loss. Given it only has net cash of ₩3.67b, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Cellid 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Cellid is showing 6 warning signs in our investment analysis , and 4 of those don't sit too well with us...

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.