Does Maccura BiotechnologyLtd (SZSE:300463) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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, Maccura Biotechnology Co.Ltd (SZSE:300463) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Maccura BiotechnologyLtd

How Much Debt Does Maccura BiotechnologyLtd Carry?

As you can see below, Maccura BiotechnologyLtd had CN¥744.5m of debt at September 2024, down from CN¥795.4m a year prior. But on the other hand it also has CN¥950.0m in cash, leading to a CN¥205.5m net cash position.

A Look At Maccura BiotechnologyLtd's Liabilities

According to the last reported balance sheet, Maccura BiotechnologyLtd had liabilities of CN¥1.24b due within 12 months, and liabilities of CN¥348.7m due beyond 12 months. Offsetting these obligations, it had cash of CN¥950.0m as well as receivables valued at CN¥1.62b due within 12 months. So it can boast CN¥982.7m more liquid assets than total liabilities.

This surplus suggests that Maccura BiotechnologyLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Maccura BiotechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact Maccura BiotechnologyLtd's saving grace is its low debt levels, because its EBIT has tanked 41% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. 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 Maccura BiotechnologyLtd'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Maccura BiotechnologyLtd 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, Maccura BiotechnologyLtd reported free cash flow worth 10% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Maccura BiotechnologyLtd has CN¥205.5m in net cash and a decent-looking balance sheet. So we are not troubled with Maccura BiotechnologyLtd's debt use. 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. For instance, we've identified 1 warning sign for Maccura BiotechnologyLtd that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.