Xi'an International Medical Investment (SZSE:000516) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Xi'an International Medical Investment Company Limited (SZSE:000516) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Xi'an International Medical Investment

What Is Xi'an International Medical Investment's Debt?

You can click the graphic below for the historical numbers, but it shows that Xi'an International Medical Investment had CN¥4.51b of debt in September 2024, down from CN¥4.72b, one year before. However, it also had CN¥500.0m in cash, and so its net debt is CN¥4.01b.

A Look At Xi'an International Medical Investment's Liabilities

The latest balance sheet data shows that Xi'an International Medical Investment had liabilities of CN¥3.93b due within a year, and liabilities of CN¥3.14b falling due after that. Offsetting these obligations, it had cash of CN¥500.0m as well as receivables valued at CN¥805.9m due within 12 months. So its liabilities total CN¥5.77b more than the combination of its cash and short-term receivables.

Xi'an International Medical Investment has a market capitalization of CN¥13.6b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Xi'an International Medical Investment's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Xi'an International Medical Investment reported revenue of CN¥4.9b, which is a gain of 18%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Xi'an International Medical Investment had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥232m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of CN¥358m. So to be blunt we do think it is risky. 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 Xi'an International Medical Investment , and understanding them should be part of your investment process.

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.