Here's Why MicroTech Medical (Hangzhou) (HKG:2235) Can Manage Its Debt Despite Losing Money

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that MicroTech Medical (Hangzhou) Co., Ltd. (HKG:2235) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is MicroTech Medical (Hangzhou)'s Debt?

As you can see below, at the end of June 2025, MicroTech Medical (Hangzhou) had CN¥30.1m of debt, up from CN¥20.0m a year ago. Click the image for more detail. However, it does have CN¥1.72b in cash offsetting this, leading to net cash of CN¥1.69b.

How Strong Is MicroTech Medical (Hangzhou)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MicroTech Medical (Hangzhou) had liabilities of CN¥226.8m due within 12 months and liabilities of CN¥11.6m due beyond that. Offsetting this, it had CN¥1.72b in cash and CN¥138.8m in receivables that were due within 12 months. So it can boast CN¥1.62b more liquid assets than total liabilities.

This luscious liquidity implies that MicroTech Medical (Hangzhou)'s balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that MicroTech Medical (Hangzhou) 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 ultimately the future profitability of the business will decide if MicroTech Medical (Hangzhou) can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for MicroTech Medical (Hangzhou)

Over 12 months, MicroTech Medical (Hangzhou) reported revenue of CN¥441m, which is a gain of 50%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is MicroTech Medical (Hangzhou)?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that MicroTech Medical (Hangzhou) had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥115m and booked a CN¥28m accounting loss. But the saving grace is the CN¥1.69b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. MicroTech Medical (Hangzhou)'s revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. For riskier companies like MicroTech Medical (Hangzhou) I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.