Is Ascelia Pharma (STO:ACE) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Ascelia Pharma AB (publ) (STO:ACE) does use debt in its business. But the more important question is: how much risk is that debt creating?

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?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Ascelia Pharma's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Ascelia Pharma had kr25.8m of debt, an increase on kr18.0m, over one year. However, it does have kr57.3m in cash offsetting this, leading to net cash of kr31.5m.

A Look At Ascelia Pharma's Liabilities

Zooming in on the latest balance sheet data, we can see that Ascelia Pharma had liabilities of kr64.5m due within 12 months and liabilities of kr689.0k due beyond that. Offsetting these obligations, it had cash of kr57.3m as well as receivables valued at kr3.91m due within 12 months. So it has liabilities totalling kr3.95m more than its cash and near-term receivables, combined.

Having regard to Ascelia Pharma's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the kr520.4m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Ascelia Pharma boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Ascelia Pharma can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Ascelia Pharma

Given its lack of meaningful operating revenue, Ascelia Pharma shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Ascelia Pharma?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Ascelia Pharma had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through kr65m of cash and made a loss of kr85m. Given it only has net cash of kr31.5m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. We've identified 4 warning signs with Ascelia Pharma (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

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.

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.