Is Ascelia Pharma (STO:ACE) Using Debt In A Risky Way?

Simply Wall St · 3d ago

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Ascelia Pharma AB (publ) (STO:ACE) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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.

What Is Ascelia Pharma's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Ascelia Pharma had debt of kr25.2m, up from none in one year. However, it does have kr75.3m in cash offsetting this, leading to net cash of kr50.0m.

debt-equity-history-analysis
OM:ACE Debt to Equity History April 16th 2025

How Strong Is Ascelia Pharma's Balance Sheet?

According to the balance sheet data, Ascelia Pharma had liabilities of kr62.0m due within 12 months, but no longer term liabilities. On the other hand, it had cash of kr75.3m and kr6.10m worth of receivables due within a year. So it can boast kr19.4m more liquid assets than total liabilities.

This surplus suggests that Ascelia Pharma has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, 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 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See 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?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Ascelia Pharma had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr63m and booked a kr80m accounting loss. 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. For example, we've discovered 3 warning signs for Ascelia Pharma (2 are potentially serious!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.