Is Prestige BioPharma (KRX:950210) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Prestige BioPharma Limited (KRX:950210) does carry debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Prestige BioPharma

What Is Prestige BioPharma's Net Debt?

As you can see below, at the end of September 2024, Prestige BioPharma had ₩108.4b of debt, up from ₩83.2b a year ago. Click the image for more detail. But it also has ₩225.8b in cash to offset that, meaning it has ₩117.4b net cash.

A Look At Prestige BioPharma's Liabilities

We can see from the most recent balance sheet that Prestige BioPharma had liabilities of ₩176.5b falling due within a year, and liabilities of ₩51.6b due beyond that. Offsetting these obligations, it had cash of ₩225.8b as well as receivables valued at ₩390.0m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Prestige BioPharma's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the ₩194.5b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Prestige BioPharma also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Prestige BioPharma's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Prestige BioPharma reported revenue of ₩2.8b, which is a gain of 1,141%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Prestige BioPharma?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Prestige BioPharma had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of ₩90b and booked a ₩30b accounting loss. However, it has net cash of ₩117.4b, so it has a bit of time before it will need more capital. The good news for shareholders is that Prestige BioPharma 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Prestige BioPharma (of which 2 are a bit concerning!) 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.