Is Jiangsu Bioperfectus Technologies (SHSE:688399) 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 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. Importantly, Jiangsu Bioperfectus Technologies Co., Ltd. (SHSE:688399) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Jiangsu Bioperfectus Technologies

What Is Jiangsu Bioperfectus Technologies's Debt?

As you can see below, at the end of September 2024, Jiangsu Bioperfectus Technologies had CN¥312.1m of debt, up from CN¥297.1m a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥2.07b in cash, so it actually has CN¥1.76b net cash.

How Strong Is Jiangsu Bioperfectus Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jiangsu Bioperfectus Technologies had liabilities of CN¥442.6m due within 12 months and liabilities of CN¥127.2m due beyond that. Offsetting these obligations, it had cash of CN¥2.07b as well as receivables valued at CN¥98.5m due within 12 months. So it actually has CN¥1.60b more liquid assets than total liabilities.

This surplus strongly suggests that Jiangsu Bioperfectus Technologies has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Jiangsu Bioperfectus Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Jiangsu Bioperfectus Technologies will need earnings to service that debt. 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, Jiangsu Bioperfectus Technologies made a loss at the EBIT level, and saw its revenue drop to CN¥395m, which is a fall of 74%. To be frank that doesn't bode well.

So How Risky Is Jiangsu Bioperfectus Technologies?

Although Jiangsu Bioperfectus Technologies had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥179m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. For instance, we've identified 1 warning sign for Jiangsu Bioperfectus Technologies that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.