Is Beijing Aosaikang Pharmaceutical (SZSE:002755) Using Debt Sensibly?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Beijing Aosaikang Pharmaceutical Co., Ltd. (SZSE:002755) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Beijing Aosaikang Pharmaceutical

What Is Beijing Aosaikang Pharmaceutical's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Beijing Aosaikang Pharmaceutical had debt of CN¥70.0m, up from CN¥59.0m in one year. However, its balance sheet shows it holds CN¥1.95b in cash, so it actually has CN¥1.88b net cash.

A Look At Beijing Aosaikang Pharmaceutical's Liabilities

Zooming in on the latest balance sheet data, we can see that Beijing Aosaikang Pharmaceutical had liabilities of CN¥652.4m due within 12 months and liabilities of CN¥79.9m due beyond that. Offsetting this, it had CN¥1.95b in cash and CN¥281.7m in receivables that were due within 12 months. So it can boast CN¥1.50b more liquid assets than total liabilities.

This short term liquidity is a sign that Beijing Aosaikang Pharmaceutical could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Beijing Aosaikang Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Beijing Aosaikang Pharmaceutical'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, Beijing Aosaikang Pharmaceutical reported revenue of CN¥1.7b, which is a gain of 5.1%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Beijing Aosaikang Pharmaceutical?

Although Beijing Aosaikang Pharmaceutical had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥86m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Beijing Aosaikang Pharmaceutical you should be aware of.

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.