Is China Isotope & Radiation (HKG:1763) A Risky Investment?

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.' 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. We can see that China Isotope & Radiation Corporation (HKG:1763) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does China Isotope & Radiation Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 China Isotope & Radiation had CN¥2.95b of debt, an increase on CN¥2.01b, over one year. But on the other hand it also has CN¥2.97b in cash, leading to a CN¥20.6m net cash position.

A Look At China Isotope & Radiation's Liabilities

We can see from the most recent balance sheet that China Isotope & Radiation had liabilities of CN¥5.45b falling due within a year, and liabilities of CN¥2.25b due beyond that. Offsetting these obligations, it had cash of CN¥2.97b as well as receivables valued at CN¥4.89b due within 12 months. So it actually has CN¥172.4m more liquid assets than total liabilities.

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

View our latest analysis for China Isotope & Radiation

In addition to that, we're happy to report that China Isotope & Radiation has boosted its EBIT by 37%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is China Isotope & Radiation'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While China Isotope & Radiation 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, China Isotope & Radiation saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case China Isotope & Radiation has CN¥20.6m in net cash and a decent-looking balance sheet. And we liked the look of last year's 37% year-on-year EBIT growth. So we are not troubled with China Isotope & Radiation's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in China Isotope & Radiation, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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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.