Is Porton Pharma Solutions (SZSE:300363) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Porton Pharma Solutions Ltd. (SZSE:300363) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Porton Pharma Solutions

How Much Debt Does Porton Pharma Solutions Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Porton Pharma Solutions had CN¥1.33b of debt, an increase on CN¥766.5m, over one year. However, its balance sheet shows it holds CN¥1.81b in cash, so it actually has CN¥474.3m net cash.

A Look At Porton Pharma Solutions' Liabilities

Zooming in on the latest balance sheet data, we can see that Porton Pharma Solutions had liabilities of CN¥1.40b due within 12 months and liabilities of CN¥1.86b due beyond that. Offsetting this, it had CN¥1.81b in cash and CN¥720.1m in receivables that were due within 12 months. So its liabilities total CN¥736.1m more than the combination of its cash and short-term receivables.

Given Porton Pharma Solutions has a market capitalization of CN¥6.62b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Porton Pharma Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Porton Pharma Solutions'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, Porton Pharma Solutions made a loss at the EBIT level, and saw its revenue drop to CN¥3.0b, which is a fall of 57%. That makes us nervous, to say the least.

So How Risky Is Porton Pharma Solutions?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Porton Pharma Solutions lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥650m and booked a CN¥132m accounting loss. With only CN¥474.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Case in point: We've spotted 1 warning sign for Porton Pharma Solutions 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com