Is Curocell (KOSDAQ:372320) A Risky Investment?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Curocell Inc. (KOSDAQ:372320) makes use of debt. But the real question is whether this debt is making the company risky.

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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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Curocell Carry?

You can click the graphic below for the historical numbers, but it shows that Curocell had ₩35.2b of debt in December 2024, down from ₩40.4b, one year before. On the flip side, it has ₩11.8b in cash leading to net debt of about ₩23.4b.

How Strong Is Curocell's Balance Sheet?

According to the last reported balance sheet, Curocell had liabilities of ₩38.8b due within 12 months, and liabilities of ₩3.82b due beyond 12 months. On the other hand, it had cash of ₩11.8b and ₩8.85m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩30.8b.

Since publicly traded Curocell shares are worth a total of ₩364.2b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Curocell 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.

See our latest analysis for Curocell

Since Curocell doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

Caveat Emptor

Importantly, Curocell had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping ₩37b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩30b of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Curocell is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

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.