Does Shenzhen Mindray Bio-Medical Electronics (SZSE:300760) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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. As with many other companies Shenzhen Mindray Bio-Medical Electronics Co., Ltd. (SZSE:300760) makes use of 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Shenzhen Mindray Bio-Medical Electronics

What Is Shenzhen Mindray Bio-Medical Electronics's Debt?

As you can see below, at the end of September 2024, Shenzhen Mindray Bio-Medical Electronics had CN¥121.7m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has CN¥17.7b in cash, leading to a CN¥17.5b net cash position.

How Healthy Is Shenzhen Mindray Bio-Medical Electronics' Balance Sheet?

According to the last reported balance sheet, Shenzhen Mindray Bio-Medical Electronics had liabilities of CN¥11.6b due within 12 months, and liabilities of CN¥4.03b due beyond 12 months. Offsetting these obligations, it had cash of CN¥17.7b as well as receivables valued at CN¥3.84b due within 12 months. So it can boast CN¥5.91b more liquid assets than total liabilities.

Having regard to Shenzhen Mindray Bio-Medical Electronics' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥315.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Shenzhen Mindray Bio-Medical Electronics boasts net cash, so it's fair to say it does not have a heavy debt load!

Fortunately, Shenzhen Mindray Bio-Medical Electronics grew its EBIT by 10.0% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Shenzhen Mindray Bio-Medical Electronics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Shenzhen Mindray Bio-Medical Electronics may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Shenzhen Mindray Bio-Medical Electronics recorded free cash flow worth a fulsome 86% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Shenzhen Mindray Bio-Medical Electronics has CN¥17.5b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 86% of that EBIT to free cash flow, bringing in CN¥12b. So is Shenzhen Mindray Bio-Medical Electronics's debt a risk? It doesn't seem so to us. 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. To that end, you should be aware of the 1 warning sign we've spotted with Shenzhen Mindray Bio-Medical Electronics .

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.