curacleltd (KOSDAQ:365270) Has Debt But No Earnings; Should You Worry?

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.' 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 curacle co.,ltd. (KOSDAQ:365270) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 curacleltd

How Much Debt Does curacleltd Carry?

As you can see below, at the end of March 2024, curacleltd had ₩18.7b of debt, up from ₩8.00b a year ago. Click the image for more detail. But it also has ₩39.9b in cash to offset that, meaning it has ₩21.2b net cash.

A Look At curacleltd's Liabilities

Zooming in on the latest balance sheet data, we can see that curacleltd had liabilities of ₩8.73b due within 12 months and liabilities of ₩18.2b due beyond that. Offsetting these obligations, it had cash of ₩39.9b as well as receivables valued at ₩448.4m due within 12 months. So it actually has ₩13.5b more liquid assets than total liabilities.

This excess liquidity suggests that curacleltd is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, curacleltd 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 curacleltd 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, curacleltd made a loss at the EBIT level, and saw its revenue drop to ₩5.8b, which is a fall of 27%. That makes us nervous, to say the least.

So How Risky Is curacleltd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year curacleltd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩7.3b of cash and made a loss of ₩14b. While this does make the company a bit risky, it's important to remember it has net cash of ₩21.2b. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example curacleltd has 3 warning signs (and 1 which is significant) we think 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. 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