Is Alchera (KOSDAQ:347860) Weighed On By Its Debt Load?

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.' 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 can see that Alchera Inc. (KOSDAQ:347860) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Alchera

What Is Alchera's Debt?

The image below, which you can click on for greater detail, shows that Alchera had debt of ₩10.2b at the end of March 2024, a reduction from ₩11.0b over a year. However, its balance sheet shows it holds ₩13.2b in cash, so it actually has ₩3.01b net cash.

How Healthy Is Alchera's Balance Sheet?

According to the last reported balance sheet, Alchera had liabilities of ₩18.4b due within 12 months, and liabilities of ₩1.38b due beyond 12 months. Offsetting this, it had ₩13.2b in cash and ₩479.5m in receivables that were due within 12 months. So its liabilities total ₩6.09b more than the combination of its cash and short-term receivables.

Of course, Alchera has a market capitalization of ₩44.7b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Alchera also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Alchera 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.

Over 12 months, Alchera reported revenue of ₩12b, which is a gain of 6.2%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Alchera?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Alchera had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through ₩11b of cash and made a loss of ₩21b. But at least it has ₩3.01b on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see 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. Case in point: We've spotted 3 warning signs for Alchera you should be aware of, and 2 of them are significant.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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