Is Zhejiang Orient Gene BiotechLtd (SHSE:688298) Weighed On By Its Debt Load?

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. We can see that Zhejiang Orient Gene Biotech Co.,Ltd (SHSE:688298) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Zhejiang Orient Gene BiotechLtd

What Is Zhejiang Orient Gene BiotechLtd's Debt?

As you can see below, Zhejiang Orient Gene BiotechLtd had CN¥176.8m of debt at March 2024, down from CN¥593.5m a year prior. However, it does have CN¥4.50b in cash offsetting this, leading to net cash of CN¥4.32b.

A Look At Zhejiang Orient Gene BiotechLtd's Liabilities

The latest balance sheet data shows that Zhejiang Orient Gene BiotechLtd had liabilities of CN¥1.15b due within a year, and liabilities of CN¥77.2m falling due after that. Offsetting this, it had CN¥4.50b in cash and CN¥253.3m in receivables that were due within 12 months. So it actually has CN¥3.53b more liquid assets than total liabilities.

This excess liquidity is a great indication that Zhejiang Orient Gene BiotechLtd's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Zhejiang Orient Gene BiotechLtd 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 it is Zhejiang Orient Gene BiotechLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Zhejiang Orient Gene BiotechLtd had a loss before interest and tax, and actually shrunk its revenue by 86%, to CN¥627m. To be frank that doesn't bode well.

So How Risky Is Zhejiang Orient Gene BiotechLtd?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Zhejiang Orient Gene BiotechLtd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥2.1b and booked a CN¥415m accounting loss. But at least it has CN¥4.32b on the balance sheet to spend on growth, near-term. 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. 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. For instance, we've identified 1 warning sign for Zhejiang Orient Gene BiotechLtd that 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.