Does Shanghai United Imaging Healthcare (SHSE:688271) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Shanghai United Imaging Healthcare Co., Ltd. (SHSE:688271) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Shanghai United Imaging Healthcare

What Is Shanghai United Imaging Healthcare's Debt?

As you can see below, at the end of March 2024, Shanghai United Imaging Healthcare had CN¥60.2m of debt, up from CN¥23.4m a year ago. Click the image for more detail. But it also has CN¥11.2b in cash to offset that, meaning it has CN¥11.1b net cash.

How Healthy Is Shanghai United Imaging Healthcare's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shanghai United Imaging Healthcare had liabilities of CN¥5.45b due within 12 months and liabilities of CN¥630.8m due beyond that. Offsetting these obligations, it had cash of CN¥11.2b as well as receivables valued at CN¥4.08b due within 12 months. So it actually has CN¥9.19b more liquid assets than total liabilities.

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

Also good is that Shanghai United Imaging Healthcare grew its EBIT at 18% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Shanghai United Imaging Healthcare's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Shanghai United Imaging Healthcare 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 three years, Shanghai United Imaging Healthcare burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Shanghai United Imaging Healthcare has net cash of CN¥11.1b, as well as more liquid assets than liabilities. And we liked the look of last year's 18% year-on-year EBIT growth. So we are not troubled with Shanghai United Imaging Healthcare's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Shanghai United Imaging Healthcare that you should be aware of before investing here.

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.