Here's Why Chongqing Genrix Biopharmaceutical (SHSE:688443) Can Manage Its Debt Despite Losing Money

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Chongqing Genrix Biopharmaceutical Co., Ltd. (SHSE:688443) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Chongqing Genrix Biopharmaceutical

How Much Debt Does Chongqing Genrix Biopharmaceutical Carry?

The image below, which you can click on for greater detail, shows that Chongqing Genrix Biopharmaceutical had debt of CN¥614.6m at the end of June 2024, a reduction from CN¥849.6m over a year. However, its balance sheet shows it holds CN¥2.62b in cash, so it actually has CN¥2.01b net cash.

How Strong Is Chongqing Genrix Biopharmaceutical's Balance Sheet?

We can see from the most recent balance sheet that Chongqing Genrix Biopharmaceutical had liabilities of CN¥134.9m falling due within a year, and liabilities of CN¥673.0m due beyond that. On the other hand, it had cash of CN¥2.62b and CN¥231.8k worth of receivables due within a year. So it actually has CN¥1.82b more liquid assets than total liabilities.

This surplus suggests that Chongqing Genrix Biopharmaceutical is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Chongqing Genrix Biopharmaceutical 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 future earnings, more than anything, that will determine Chongqing Genrix Biopharmaceutical'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.

Over 12 months, Chongqing Genrix Biopharmaceutical reported revenue of CN¥1.1m, which is a gain of 596%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Chongqing Genrix Biopharmaceutical?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Chongqing Genrix Biopharmaceutical had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥512m of cash and made a loss of CN¥775m. But the saving grace is the CN¥2.01b on the balance sheet. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that Chongqing Genrix Biopharmaceutical has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Chongqing Genrix Biopharmaceutical (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.