Is Jiangsu Bioperfectus Technologies (SHSE:688399) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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 June 2024, Jiangsu Bioperfectus Technologies had CN¥309.1m of debt, up from CN¥190.2m a year ago. Click the image for more detail. But it also has CN¥2.49b in cash to offset that, meaning it has CN¥2.18b net cash.

How Healthy Is Jiangsu Bioperfectus Technologies' Balance Sheet?

We can see from the most recent balance sheet that Jiangsu Bioperfectus Technologies had liabilities of CN¥444.3m falling due within a year, and liabilities of CN¥125.5m due beyond that. Offsetting this, it had CN¥2.49b in cash and CN¥94.2m in receivables that were due within 12 months. So it can boast CN¥2.02b 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). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Jiangsu Bioperfectus Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jiangsu Bioperfectus Technologies'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.

In the last year Jiangsu Bioperfectus Technologies had a loss before interest and tax, and actually shrunk its revenue by 84%, to CN¥394m. 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¥263m. 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. 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. We've identified 1 warning sign with Jiangsu Bioperfectus Technologies , and understanding them should be part of your investment process.

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.