Would Tinavi Medical TechnologiesLtd (SHSE:688277) Be Better Off With Less Debt?

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.' 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 can see that Tinavi Medical Technologies Co.,Ltd. (SHSE:688277) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Tinavi Medical TechnologiesLtd

What Is Tinavi Medical TechnologiesLtd's Net Debt?

As you can see below, at the end of September 2024, Tinavi Medical TechnologiesLtd had CN¥212.9m of debt, up from CN¥193.8m a year ago. Click the image for more detail. On the flip side, it has CN¥171.8m in cash leading to net debt of about CN¥41.2m.

How Healthy Is Tinavi Medical TechnologiesLtd's Balance Sheet?

We can see from the most recent balance sheet that Tinavi Medical TechnologiesLtd had liabilities of CN¥132.5m falling due within a year, and liabilities of CN¥189.8m due beyond that. On the other hand, it had cash of CN¥171.8m and CN¥74.1m worth of receivables due within a year. So it has liabilities totalling CN¥76.4m more than its cash and near-term receivables, combined.

Having regard to Tinavi Medical TechnologiesLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥5.15b company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Tinavi Medical TechnologiesLtd has a very light debt load indeed. 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 made a loss at the EBIT level, and saw its revenue drop to CN¥168m, which is a fall of 18%. We would much prefer see growth.

Caveat Emptor

Not only did Tinavi Medical TechnologiesLtd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CN¥195m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥184m of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Tinavi Medical TechnologiesLtd is showing 3 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.