Beijing Andawell Science & Technology (SZSE:300719) Has A Pretty Healthy Balance Sheet

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Beijing Andawell Science & Technology Co., Ltd. (SZSE:300719) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Beijing Andawell Science & Technology

What Is Beijing Andawell Science & Technology's Net Debt?

As you can see below, at the end of March 2024, Beijing Andawell Science & Technology had CN¥161.7m of debt, up from CN¥83.2m a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥185.6m in cash, so it actually has CN¥23.9m net cash.

How Healthy Is Beijing Andawell Science & Technology's Balance Sheet?

We can see from the most recent balance sheet that Beijing Andawell Science & Technology had liabilities of CN¥407.6m falling due within a year, and liabilities of CN¥20.7m due beyond that. Offsetting these obligations, it had cash of CN¥185.6m as well as receivables valued at CN¥776.2m due within 12 months. So it can boast CN¥533.5m more liquid assets than total liabilities.

This surplus suggests that Beijing Andawell Science & Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Beijing Andawell Science & Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Beijing Andawell Science & Technology made a loss at the EBIT level, last year, it was also good to see that it generated CN¥133m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Beijing Andawell Science & Technology 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Beijing Andawell Science & Technology has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, Beijing Andawell Science & Technology burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Beijing Andawell Science & Technology has CN¥23.9m in net cash and a decent-looking balance sheet. So we don't have any problem with Beijing Andawell Science & Technology's use of debt. 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. For example, we've discovered 4 warning signs for Beijing Andawell Science & Technology (3 are concerning!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.