Does Yimikang Tech.Group (SZSE:300249) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Yimikang Tech.Group Co., Ltd. (SZSE:300249) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

Check out our latest analysis for Yimikang Tech.Group

How Much Debt Does Yimikang Tech.Group Carry?

You can click the graphic below for the historical numbers, but it shows that Yimikang Tech.Group had CN¥352.9m of debt in September 2024, down from CN¥492.1m, one year before. On the flip side, it has CN¥124.6m in cash leading to net debt of about CN¥228.4m.

How Strong Is Yimikang Tech.Group's Balance Sheet?

We can see from the most recent balance sheet that Yimikang Tech.Group had liabilities of CN¥1.10b falling due within a year, and liabilities of CN¥95.2m due beyond that. Offsetting this, it had CN¥124.6m in cash and CN¥717.2m in receivables that were due within 12 months. So it has liabilities totalling CN¥350.2m more than its cash and near-term receivables, combined.

Since publicly traded Yimikang Tech.Group shares are worth a total of CN¥5.15b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Yimikang Tech.Group's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Yimikang Tech.Group wasn't profitable at an EBIT level, but managed to grow its revenue by 36%, to CN¥949m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Yimikang Tech.Group still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥41m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of CN¥128m. So we do think this stock is quite risky. 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. Case in point: We've spotted 2 warning signs for Yimikang Tech.Group you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.