WEBULL

Is RP Bio (KOSDAQ:314140) A Risky Investment?

Simply Wall St · 1d 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. As with many other companies RP Bio Inc. (KOSDAQ:314140) makes use of debt. But the more important question is: how much risk is that debt creating?

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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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is RP Bio's Debt?

The image below, which you can click on for greater detail, shows that RP Bio had debt of ₩16.0b at the end of September 2025, a reduction from ₩25.0b over a year. However, because it has a cash reserve of ₩15.1b, its net debt is less, at about ₩916.1m.

debt-equity-history-analysis
KOSDAQ:A314140 Debt to Equity History December 16th 2025

How Strong Is RP Bio's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that RP Bio had liabilities of ₩41.9b due within 12 months and liabilities of ₩7.24b due beyond that. On the other hand, it had cash of ₩15.1b and ₩16.1b worth of receivables due within a year. So it has liabilities totalling ₩17.9b more than its cash and near-term receivables, combined.

RP Bio has a market capitalization of ₩66.3b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Carrying virtually no net debt, RP Bio has a very light debt load indeed.

Check out our latest analysis for RP Bio

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

With debt at a measly 0.081 times EBITDA and EBIT covering interest a whopping 11.1 times, it's clear that RP Bio is not a desperate borrower. Indeed relative to its earnings its debt load seems light as a feather. Although RP Bio made a loss at the EBIT level, last year, it was also good to see that it generated ₩4.8b in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since RP Bio will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Over the last year, RP Bio actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

Happily, RP Bio's impressive conversion of EBIT to free cash flow implies it has the upper hand on its debt. And the good news does not stop there, as its net debt to EBITDA also supports that impression! When we consider the range of factors above, it looks like RP Bio is pretty sensible with its use of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for RP Bio (of which 1 is potentially serious!) you should know about.

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.