We Think Shanghai MicroPort MedBot (Group) (HKG:2252) Has A Fair Chunk Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 note that Shanghai MicroPort MedBot (Group) Co., Ltd. (HKG:2252) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

We've discovered 1 warning sign about Shanghai MicroPort MedBot (Group). View them for free.

When Is Debt Dangerous?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Shanghai MicroPort MedBot (Group)'s Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Shanghai MicroPort MedBot (Group) had CN¥634.5m of debt, an increase on CN¥475.4m, over one year. However, it does have CN¥612.2m in cash offsetting this, leading to net debt of about CN¥22.3m.

How Healthy Is Shanghai MicroPort MedBot (Group)'s Balance Sheet?

We can see from the most recent balance sheet that Shanghai MicroPort MedBot (Group) had liabilities of CN¥503.5m falling due within a year, and liabilities of CN¥517.9m due beyond that. Offsetting these obligations, it had cash of CN¥612.2m as well as receivables valued at CN¥92.8m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥316.3m.

Having regard to Shanghai MicroPort MedBot (Group)'s size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥18.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. Carrying virtually no net debt, Shanghai MicroPort MedBot (Group) has a very light debt load indeed. 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 Shanghai MicroPort MedBot (Group)'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.

See our latest analysis for Shanghai MicroPort MedBot (Group)

In the last year Shanghai MicroPort MedBot (Group) wasn't profitable at an EBIT level, but managed to grow its revenue by 146%, to CN¥257m. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

While we can certainly appreciate Shanghai MicroPort MedBot (Group)'s revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost CN¥474m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of CN¥642m into a profit. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Shanghai MicroPort MedBot (Group) that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.