Qingdao Baheal Medical (SZSE:301015) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Qingdao Baheal Medical INC. (SZSE:301015) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Qingdao Baheal Medical

What Is Qingdao Baheal Medical's Debt?

The chart below, which you can click on for greater detail, shows that Qingdao Baheal Medical had CN¥1.21b in debt in December 2023; about the same as the year before. However, it does have CN¥1.21b in cash offsetting this, leading to net cash of CN¥19.0k.

How Healthy Is Qingdao Baheal Medical's Balance Sheet?

The latest balance sheet data shows that Qingdao Baheal Medical had liabilities of CN¥1.82b due within a year, and liabilities of CN¥837.4m falling due after that. On the other hand, it had cash of CN¥1.21b and CN¥2.37b worth of receivables due within a year. So it can boast CN¥922.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Qingdao Baheal Medical could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Qingdao Baheal Medical has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, Qingdao Baheal Medical grew its EBIT by 32% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Qingdao Baheal Medical 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 company can only pay off debt with cold hard cash, not accounting profits. Qingdao Baheal Medical 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. In the last three years, Qingdao Baheal Medical's free cash flow amounted to 37% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Qingdao Baheal Medical has net cash of CN¥19.0k, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 32% over the last year. So is Qingdao Baheal Medical's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Qingdao Baheal Medical you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.