Is Ascelia Pharma (STO:ACE) 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. As with many other companies Ascelia Pharma AB (publ) (STO:ACE) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Ascelia Pharma

What Is Ascelia Pharma's Net Debt?

As you can see below, at the end of December 2024, Ascelia Pharma had kr25.2m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has kr75.3m in cash, leading to a kr50.0m net cash position.

How Healthy Is Ascelia Pharma's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ascelia Pharma had liabilities of kr62.0m due within 12 months and no liabilities due beyond that. On the other hand, it had cash of kr75.3m and kr5.69m worth of receivables due within a year. So it can boast kr19.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Ascelia Pharma could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Ascelia Pharma has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Ascelia Pharma's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

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

So How Risky Is Ascelia Pharma?

Statistically speaking companies that lose money are riskier than those that make money. 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 kr63m of cash and made a loss of kr80m. But at least it has kr50.0m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Ascelia Pharma you should be aware of, and 2 of them are significant.

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.