Is curacleltd (KOSDAQ:365270) Using Debt Sensibly?

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. 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 Dangerous?

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. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for curacleltd

What Is curacleltd's Net Debt?

As you can see below, at the end of September 2024, curacleltd had ₩19.7b of debt, up from ₩18.4b a year ago. Click the image for more detail. However, it does have ₩33.7b in cash offsetting this, leading to net cash of ₩13.9b.

How Strong Is curacleltd's Balance Sheet?

We can see from the most recent balance sheet that curacleltd had liabilities of ₩27.9b falling due within a year, and liabilities of ₩112.1m due beyond that. Offsetting these obligations, it had cash of ₩33.7b as well as receivables valued at ₩448.4m due within 12 months. So it can boast ₩6.14b more liquid assets than total liabilities.

This surplus suggests that curacleltd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, curacleltd 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 you can't view debt in total isolation; since curacleltd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year curacleltd had a loss before interest and tax, and actually shrunk its revenue by 82%, to ₩1.8b. To be frank that doesn't bode well.

So How Risky Is curacleltd?

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 curacleltd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩7.9b and booked a ₩16b accounting loss. But the saving grace is the ₩13.9b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. 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. We've identified 2 warning signs with curacleltd , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.