Health Check: How Prudently Does Tinavi Medical TechnologiesLtd (SHSE:688277) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Tinavi Medical Technologies Co.,Ltd. (SHSE:688277) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Tinavi Medical TechnologiesLtd

How Much Debt Does Tinavi Medical TechnologiesLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Tinavi Medical TechnologiesLtd had CN¥193.8m of debt, an increase on CN¥22.1m, over one year. However, its balance sheet shows it holds CN¥379.4m in cash, so it actually has CN¥185.6m net cash.

How Strong Is Tinavi Medical TechnologiesLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tinavi Medical TechnologiesLtd had liabilities of CN¥94.4m due within 12 months and liabilities of CN¥218.9m due beyond that. Offsetting this, it had CN¥379.4m in cash and CN¥56.3m in receivables that were due within 12 months. So it actually has CN¥122.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Tinavi Medical TechnologiesLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Tinavi Medical TechnologiesLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Tinavi Medical TechnologiesLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Tinavi Medical TechnologiesLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 52%, to CN¥206m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Tinavi Medical TechnologiesLtd?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Tinavi Medical TechnologiesLtd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥322m of cash and made a loss of CN¥100m. However, it has net cash of CN¥185.6m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, Tinavi Medical TechnologiesLtd may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with Tinavi Medical TechnologiesLtd (including 1 which is a bit unpleasant) .

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.