Here's Why HARBIN GLORIA PHARMACEUTICALS (SZSE:002437) Can Manage Its Debt Responsibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies HARBIN GLORIA PHARMACEUTICALS Co., LTD (SZSE:002437) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 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 HARBIN GLORIA PHARMACEUTICALS

What Is HARBIN GLORIA PHARMACEUTICALS's Debt?

The image below, which you can click on for greater detail, shows that HARBIN GLORIA PHARMACEUTICALS had debt of CN¥44.5m at the end of September 2024, a reduction from CN¥800.9m over a year. But it also has CN¥468.7m in cash to offset that, meaning it has CN¥424.2m net cash.

How Strong Is HARBIN GLORIA PHARMACEUTICALS' Balance Sheet?

We can see from the most recent balance sheet that HARBIN GLORIA PHARMACEUTICALS had liabilities of CN¥871.9m falling due within a year, and liabilities of CN¥40.7m due beyond that. Offsetting these obligations, it had cash of CN¥468.7m as well as receivables valued at CN¥186.4m due within 12 months. So its liabilities total CN¥257.4m more than the combination of its cash and short-term receivables.

Of course, HARBIN GLORIA PHARMACEUTICALS has a market capitalization of CN¥5.56b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, HARBIN GLORIA PHARMACEUTICALS boasts net cash, so it's fair to say it does not have a heavy debt load!

HARBIN GLORIA PHARMACEUTICALS grew its EBIT by 6.5% in the last year. That's far from incredible but it is a good thing, when it comes to paying off debt. There's no doubt that we learn most about debt from the balance sheet. But it is HARBIN GLORIA PHARMACEUTICALS's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While HARBIN GLORIA PHARMACEUTICALS 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, HARBIN GLORIA PHARMACEUTICALS actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about HARBIN GLORIA PHARMACEUTICALS's liabilities, but we can be reassured by the fact it has has net cash of CN¥424.2m. And it impressed us with free cash flow of CN¥223m, being 224% of its EBIT. So we don't have any problem with HARBIN GLORIA PHARMACEUTICALS's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for HARBIN GLORIA PHARMACEUTICALS that you should be aware of.

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.