We Think Chengdu Olymvax Biopharmaceuticals (SHSE:688319) Has A Fair Chunk Of Debt

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 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, Chengdu Olymvax Biopharmaceuticals Inc. (SHSE:688319) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 Chengdu Olymvax Biopharmaceuticals

What Is Chengdu Olymvax Biopharmaceuticals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Chengdu Olymvax Biopharmaceuticals had CN¥355.0m of debt, an increase on CN¥159.2m, over one year. However, because it has a cash reserve of CN¥295.7m, its net debt is less, at about CN¥59.2m.

How Strong Is Chengdu Olymvax Biopharmaceuticals' Balance Sheet?

The latest balance sheet data shows that Chengdu Olymvax Biopharmaceuticals had liabilities of CN¥484.9m due within a year, and liabilities of CN¥286.7m falling due after that. Offsetting this, it had CN¥295.7m in cash and CN¥496.5m in receivables that were due within 12 months. So it can boast CN¥20.6m more liquid assets than total liabilities.

Having regard to Chengdu Olymvax Biopharmaceuticals' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥3.75b company is short on cash, but still worth keeping an eye on the balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Chengdu Olymvax Biopharmaceuticals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Chengdu Olymvax Biopharmaceuticals made a loss at the EBIT level, and saw its revenue drop to CN¥489m, which is a fall of 11%. We would much prefer see growth.

Caveat Emptor

While Chengdu Olymvax Biopharmaceuticals's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost CN¥48m at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. For riskier companies like Chengdu Olymvax Biopharmaceuticals 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.

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.