Does Sino-Life Group (HKG:8296) Have A 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.' 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 Sino-Life Group Limited (HKG:8296) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Sino-Life Group

How Much Debt Does Sino-Life Group Carry?

The image below, which you can click on for greater detail, shows that Sino-Life Group had debt of CN¥33.5m at the end of December 2021, a reduction from CN¥40.5m over a year. However, its balance sheet shows it holds CN¥157.4m in cash, so it actually has CN¥123.9m net cash.

How Healthy Is Sino-Life Group's Balance Sheet?

The latest balance sheet data shows that Sino-Life Group had liabilities of CN¥130.2m due within a year, and liabilities of CN¥28.1m falling due after that. On the other hand, it had cash of CN¥157.4m and CN¥2.78m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Sino-Life Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥93.9m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Sino-Life Group has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sino-Life Group will need earnings to service that debt. 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 Sino-Life Group's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Sino-Life Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Sino-Life Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥4.3m of cash and made a loss of CN¥12m. With only CN¥123.9m 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. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Sino-Life Group , and understanding them should be part of your investment process.

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.