Does Beijing Wantai Biological Pharmacy Enterprise (SHSE:603392) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Beijing Wantai Biological Pharmacy Enterprise Co., Ltd. (SHSE:603392) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Beijing Wantai Biological Pharmacy Enterprise

What Is Beijing Wantai Biological Pharmacy Enterprise's Net Debt?

As you can see below, Beijing Wantai Biological Pharmacy Enterprise had CN¥267.0m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has CN¥5.50b in cash to offset that, meaning it has CN¥5.23b net cash.

How Strong Is Beijing Wantai Biological Pharmacy Enterprise's Balance Sheet?

The latest balance sheet data shows that Beijing Wantai Biological Pharmacy Enterprise had liabilities of CN¥1.95b due within a year, and liabilities of CN¥180.9m falling due after that. Offsetting these obligations, it had cash of CN¥5.50b as well as receivables valued at CN¥2.49b due within 12 months. So it can boast CN¥5.86b more liquid assets than total liabilities.

This surplus suggests that Beijing Wantai Biological Pharmacy Enterprise has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Beijing Wantai Biological Pharmacy Enterprise boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Beijing Wantai Biological Pharmacy Enterprise 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.

In the last year Beijing Wantai Biological Pharmacy Enterprise had a loss before interest and tax, and actually shrunk its revenue by 67%, to CN¥2.5b. That makes us nervous, to say the least.

So How Risky Is Beijing Wantai Biological Pharmacy Enterprise?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Beijing Wantai Biological Pharmacy Enterprise lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥153m and booked a CN¥294m accounting loss. Given it only has net cash of CN¥5.23b, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. For riskier companies like Beijing Wantai Biological Pharmacy Enterprise I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.