Is Tinavi Medical TechnologiesLtd (SHSE:688277) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We can see that Tinavi Medical Technologies Co.,Ltd. (SHSE:688277) does use debt in its business. 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. 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.

View our latest analysis for Tinavi Medical TechnologiesLtd

What Is Tinavi Medical TechnologiesLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Tinavi Medical TechnologiesLtd had CN¥225.0m of debt, an increase on CN¥38.9m, over one year. However, it does have CN¥309.1m in cash offsetting this, leading to net cash of CN¥84.1m.

How Strong Is Tinavi Medical TechnologiesLtd's Balance Sheet?

We can see from the most recent balance sheet that Tinavi Medical TechnologiesLtd had liabilities of CN¥140.6m falling due within a year, and liabilities of CN¥209.1m due beyond that. On the other hand, it had cash of CN¥309.1m and CN¥64.7m worth of receivables due within a year. So it can boast CN¥24.0m more liquid assets than total liabilities.

This state of affairs indicates that Tinavi Medical TechnologiesLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥3.76b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Tinavi Medical TechnologiesLtd boasts net cash, so it's fair to say it does not have a heavy debt load! 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Tinavi Medical TechnologiesLtd reported revenue of CN¥199m, which is a gain of 12%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Tinavi Medical TechnologiesLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Tinavi Medical TechnologiesLtd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥351m and booked a CN¥175m accounting loss. Given it only has net cash of CN¥84.1m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Tinavi Medical TechnologiesLtd 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.

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