Guangdong Marubi Biotechnology (SHSE:603983) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Guangdong Marubi Biotechnology Co., Ltd. (SHSE:603983) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Guangdong Marubi Biotechnology

What Is Guangdong Marubi Biotechnology's Net Debt?

The image below, which you can click on for greater detail, shows that Guangdong Marubi Biotechnology had debt of CN¥150.1m at the end of March 2024, a reduction from CN¥200.1m over a year. But on the other hand it also has CN¥1.76b in cash, leading to a CN¥1.61b net cash position.

How Strong Is Guangdong Marubi Biotechnology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Guangdong Marubi Biotechnology had liabilities of CN¥807.5m due within 12 months and liabilities of CN¥25.3m due beyond that. Offsetting these obligations, it had cash of CN¥1.76b as well as receivables valued at CN¥50.0m due within 12 months. So it can boast CN¥977.0m more liquid assets than total liabilities.

This surplus suggests that Guangdong Marubi Biotechnology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Guangdong Marubi Biotechnology boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Guangdong Marubi Biotechnology has boosted its EBIT by 35%, thus reducing the spectre of future debt repayments. 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 Guangdong Marubi Biotechnology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Guangdong Marubi Biotechnology has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Guangdong Marubi Biotechnology recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case Guangdong Marubi Biotechnology has CN¥1.61b in net cash and a decent-looking balance sheet. And we liked the look of last year's 35% year-on-year EBIT growth. So we are not troubled with Guangdong Marubi Biotechnology's debt use. 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. For example - Guangdong Marubi Biotechnology has 1 warning sign we think you should be aware of.

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.