Curasight (NGM:CURAS) Is Making Moderate Use Of 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. As with many other companies Curasight A/S (NGM:CURAS) makes use of debt. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Curasight

How Much Debt Does Curasight Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Curasight had kr.10.1m of debt, an increase on none, over one year. However, because it has a cash reserve of kr.8.38m, its net debt is less, at about kr.1.72m.

A Look At Curasight's Liabilities

Zooming in on the latest balance sheet data, we can see that Curasight had liabilities of kr.16.2m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of kr.8.38m as well as receivables valued at kr.13.2m due within 12 months. So it can boast kr.5.37m more liquid assets than total liabilities.

This surplus suggests that Curasight has a conservative balance sheet, and could probably eliminate its debt without much difficulty. But either way, Curasight has virtually no net debt, 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 ultimately the future profitability of the business will decide if Curasight can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since Curasight doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

Caveat Emptor

Importantly, Curasight had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping kr.37m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 6 warning signs for Curasight (4 are a bit concerning!) that you should be aware of before investing here.

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.

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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.