Is Xcure (KOSDAQ:070300) Using Too Much Debt?

David Iben put it best when he said, “Volatility is not a risk we care about. We care about avoiding permanent loss of capital.” When you think about how risky a particular stock is It may be obvious that you need to consider debt, because too much debt can ruin a business. What is important is Xcure Corp. (KOSDAQ:070300) carries debt. But the real question is whether this debt makes the company risky.

What risk does debt bring with it?

Debt and other liabilities become risky for a company when it cannot easily meet those obligations, either through free cash flow or by raising capital at an attractive price. If the company can’t meet its legal obligations to pay down debt, shareholders could end up with nothing. However, a more common (but still costly) situation is where a company must dilute shareholders at a cheap share price just to get debt under control. However, the most common situation is for a company to manage its debt reasonably well – and to its own advantage. When considering how much debt a company has, you first need to consider its cash flow and debt together.

Check out our latest analysis for Xcure

How much is Xcure’s net debt?

The image below, which you can click on for more details, shows that Xcure had ₩3.10b of debt at the end of September 2024, a reduction from ₩7.18b over a year. However, this is offset by ₩6.80b in cash, leading to net cash of ₩3.70b.

How healthy is Xcure’s balance sheet?

The latest balance sheet data shows that Xcure had liabilities of ₩16.6b within a year, and liabilities of ₩1.55b falling due after that. On the other hand, it had cash of ₩6.80b and ₩12.5b worth of receivables due within a year. So it has ₩1.11 billion more liquid assets than in total Liabilities.

This short-term liquidity is a sign that Xcure could probably pay off its debt easily, as its balance sheet is far from overstretched. In short, Xcure has net cash, so it’s fair to say that the company doesn’t have a large debt load!

Notably, Xcure made a loss at the EBIT level last year, but improved this to a positive EBIT of ₩23m over the last twelve months. When analyzing debt levels, the balance sheet is the obvious place to start. But you can’t look at debt in complete isolation; as Xcure needs revenue to service this debt. So if you’re interested in discovering more about the company’s earnings, it might be worth checking out this graph of its long-term earnings trend.

After all, a company can only pay off its debts with cold hard cash, not accounting profits. While Xcure does have net cash on the balance sheet, it is still interesting to see how well the company converts its earnings before interest and tax (EBIT) into free cash flow, as this will impact both its need for it and its ability to do so Manage debt. Last year, Xcure posted significantly negative free cash flow overall. While investors undoubtedly expect this situation to reverse in due course, it clearly means that using debt is riskier.

In summary

While it’s always useful to examine a company’s debt, in this case Xcure has ₩3.70b in net cash and a sizable balance sheet. While Xcure’s track record isn’t great, it’s certainly not bad. There is no doubt that the balance sheet is where we learn the most about debt. However, not all investment risks lie on the balance sheet – quite the opposite. For example, we identified 4 warning signs for Xcure (1 is a bit uncomfortable) you should be aware of.

If you’re interested in investing in companies that can grow profits without the burden of debt, then check this out free List of growing companies that have net cash on the balance sheet.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.