Is Jiangsu Bioperfectus Technologies (SHSE:688399) Using Debt In A Risky Way?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Jiangsu Bioperfectus Technologies Co., Ltd. (SHSE:688399) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Jiangsu Bioperfectus Technologies

How Much Debt Does Jiangsu Bioperfectus Technologies Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Jiangsu Bioperfectus Technologies had debt of CN¥310.0m, up from CN¥274.9m in one year. But on the other hand it also has CN¥2.63b in cash, leading to a CN¥2.32b net cash position.

A Look At Jiangsu Bioperfectus Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that Jiangsu Bioperfectus Technologies had liabilities of CN¥454.8m due within 12 months and liabilities of CN¥133.3m due beyond that. Offsetting this, it had CN¥2.63b in cash and CN¥82.1m in receivables that were due within 12 months. So it can boast CN¥2.13b more liquid assets than total liabilities.

This surplus liquidity suggests that Jiangsu Bioperfectus Technologies' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. 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. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Over 12 months, Jiangsu Bioperfectus Technologies made a loss at the EBIT level, and saw its revenue drop to CN¥400m, which is a fall of 90%. To be frank that doesn't bode well.

So How Risky Is Jiangsu Bioperfectus Technologies?

While Jiangsu Bioperfectus Technologies lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥78m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. There's no doubt the next few years will be crucial to how the business matures. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Jiangsu Bioperfectus Technologies's profit, revenue, and operating cashflow have changed over the last few years.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.