Is Exicon (KOSDAQ:092870) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Exicon Co., Ltd. (KOSDAQ:092870) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Exicon

How Much Debt Does Exicon Carry?

As you can see below, Exicon had ₩7.56b of debt at September 2024, down from ₩8.00b a year prior. However, its balance sheet shows it holds ₩45.4b in cash, so it actually has ₩37.8b net cash.

How Healthy Is Exicon's Balance Sheet?

The latest balance sheet data shows that Exicon had liabilities of ₩12.8b due within a year, and liabilities of ₩3.39b falling due after that. Offsetting these obligations, it had cash of ₩45.4b as well as receivables valued at ₩243.5m due within 12 months. So it can boast ₩29.5b more liquid assets than total liabilities.

This excess liquidity suggests that Exicon is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Exicon 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 Exicon 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, Exicon made a loss at the EBIT level, and saw its revenue drop to ₩30b, which is a fall of 72%. That makes us nervous, to say the least.

So How Risky Is Exicon?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Exicon lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩20b and booked a ₩4.7b accounting loss. With only ₩37.8b on the balance sheet, it would appear that its going to need to raise capital again soon. 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. 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. For example - Exicon has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.