Is SOS Lab (KOSDAQ:464080) A Risky Investment?

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.' 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 note that SOS Lab Co., Ltd. (KOSDAQ:464080) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is SOS Lab's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 SOS Lab had debt of ₩13.0b, up from ₩3.86b in one year. However, it does have ₩19.4b in cash offsetting this, leading to net cash of ₩6.42b.

How Strong Is SOS Lab's Balance Sheet?

The latest balance sheet data shows that SOS Lab had liabilities of ₩4.24b due within a year, and liabilities of ₩12.2b falling due after that. Offsetting these obligations, it had cash of ₩19.4b as well as receivables valued at ₩1.54b due within 12 months. So it actually has ₩4.52b more liquid assets than total liabilities.

This surplus suggests that SOS Lab has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, SOS Lab 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 it is future earnings, more than anything, that will determine SOS Lab's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for SOS Lab

In the last year SOS Lab had a loss before interest and tax, and actually shrunk its revenue by 40%, to ₩3.5b. To be frank that doesn't bode well.

So How Risky Is SOS Lab?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months SOS Lab lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₩26b and booked a ₩14b accounting loss. Given it only has net cash of ₩6.42b, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the 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. Be aware that SOS Lab is showing 4 warning signs in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.