Is Xcure (KOSDAQ:070300) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Xcure Corp. (KOSDAQ:070300) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Xcure

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. However, it does have ₩6.80b in cash offsetting this, leading to net cash of ₩3.70b.

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 can boast ₩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!

Notably, Xcure made a loss at the EBIT level, last year, but improved that to positive EBIT of ₩23m in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Xcure 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Xcure may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, Xcure saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Xcure has ₩3.70b in net cash and a decent-looking balance sheet. So while Xcure does not have a great balance sheet, it's certainly not too bad. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Xcure (1 is a bit unpleasant) you should be aware of.

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.