Is Xcure (KOSDAQ:070300) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Xcure Corp. (KOSDAQ:070300) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Xcure's Net Debt?

The image below, which you can click on for greater detail, shows that Xcure had debt of ₩3.10b at the end of September 2024, a reduction from ₩7.18b over a year. But it also has ₩6.80b in cash to offset that, meaning it has ₩3.70b net cash.

How Healthy Is Xcure's Balance Sheet?

The latest balance sheet data shows that Xcure had liabilities of ₩16.6b due within a year, and liabilities of ₩1.55b falling due after that. On the other hand, it had cash of ₩6.80b and ₩12.5b worth of receivables due within a year. So it actually has ₩1.11b more liquid assets than total liabilities.

This short term liquidity is a sign that Xcure could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Xcure boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Xcure

Notably, Xcure made a loss at the EBIT level, last year, but improved that to positive EBIT of ₩23m in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is Xcure'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Xcure has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Xcure saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Xcure has net cash of ₩3.70b, as well as more liquid assets than liabilities. So although we see some areas for improvement, we're not too worried about Xcure's balance sheet. 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, we've discovered 3 warning signs for Xcure (1 can't be ignored!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.