Tianjin Ringpu Bio-TechnologyLtd (SZSE:300119) Has A Pretty Healthy Balance Sheet

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. Importantly, Tianjin Ringpu Bio-Technology Co.,Ltd. (SZSE:300119) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

See our latest analysis for Tianjin Ringpu Bio-TechnologyLtd

How Much Debt Does Tianjin Ringpu Bio-TechnologyLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Tianjin Ringpu Bio-TechnologyLtd had CN¥1.27b of debt, an increase on CN¥675.5m, over one year. But on the other hand it also has CN¥1.69b in cash, leading to a CN¥416.3m net cash position.

A Look At Tianjin Ringpu Bio-TechnologyLtd's Liabilities

The latest balance sheet data shows that Tianjin Ringpu Bio-TechnologyLtd had liabilities of CN¥1.74b due within a year, and liabilities of CN¥736.6m falling due after that. Offsetting this, it had CN¥1.69b in cash and CN¥1.14b in receivables that were due within 12 months. So it can boast CN¥348.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Tianjin Ringpu Bio-TechnologyLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Tianjin Ringpu Bio-TechnologyLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

Tianjin Ringpu Bio-TechnologyLtd's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Tianjin Ringpu Bio-TechnologyLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Tianjin Ringpu Bio-TechnologyLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Tianjin Ringpu Bio-TechnologyLtd's free cash flow amounted to 45% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Tianjin Ringpu Bio-TechnologyLtd has net cash of CN¥416.3m, as well as more liquid assets than liabilities. So we don't have any problem with Tianjin Ringpu Bio-TechnologyLtd's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Tianjin Ringpu Bio-TechnologyLtd is showing 1 warning sign in our investment analysis , you should know about...

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.