Is TELCON RF PHARMACEUTICAL (KOSDAQ:200230) Using Too Much Debt?

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. As with many other companies TELCON RF PHARMACEUTICAL. Inc. (KOSDAQ:200230) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for TELCON RF PHARMACEUTICAL

How Much Debt Does TELCON RF PHARMACEUTICAL Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 TELCON RF PHARMACEUTICAL had ₩86.0b of debt, an increase on ₩11.0b, over one year. However, because it has a cash reserve of ₩24.7b, its net debt is less, at about ₩61.3b.

How Strong Is TELCON RF PHARMACEUTICAL's Balance Sheet?

The latest balance sheet data shows that TELCON RF PHARMACEUTICAL had liabilities of ₩90.9b due within a year, and liabilities of ₩2.66b falling due after that. On the other hand, it had cash of ₩24.7b and ₩10.8b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₩58.1b.

Of course, TELCON RF PHARMACEUTICAL has a market capitalization of ₩429.4b, 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. There's no doubt that we learn most about debt from the balance sheet. But it is TELCON RF PHARMACEUTICAL's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year TELCON RF PHARMACEUTICAL had a loss before interest and tax, and actually shrunk its revenue by 37%, to ₩33b. That makes us nervous, to say the least.

Caveat Emptor

While TELCON RF PHARMACEUTICAL's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost ₩2.1b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled ₩1.8b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. Case in point: We've spotted 1 warning sign for TELCON RF PHARMACEUTICAL 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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