Does BGI Genomics (SZSE:300676) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that BGI Genomics Co., Ltd. (SZSE:300676) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for BGI Genomics

How Much Debt Does BGI Genomics Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 BGI Genomics had CN¥347.5m of debt, an increase on CN¥208.8m, over one year. But on the other hand it also has CN¥4.71b in cash, leading to a CN¥4.37b net cash position.

A Look At BGI Genomics' Liabilities

The latest balance sheet data shows that BGI Genomics had liabilities of CN¥2.88b due within a year, and liabilities of CN¥436.6m falling due after that. On the other hand, it had cash of CN¥4.71b and CN¥1.91b worth of receivables due within a year. So it actually has CN¥3.31b more liquid assets than total liabilities.

This surplus suggests that BGI Genomics is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, BGI Genomics 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 BGI Genomics'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.

In the last year BGI Genomics had a loss before interest and tax, and actually shrunk its revenue by 29%, to CN¥4.0b. That makes us nervous, to say the least.

So How Risky Is BGI Genomics?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year BGI Genomics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥571m of cash and made a loss of CN¥102m. With only CN¥4.37b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 BGI Genomics you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.