Is China Biotech Services Holdings (HKG:8037) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, China Biotech Services Holdings Limited (HKG:8037) does carry debt. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is China Biotech Services Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 China Biotech Services Holdings had debt of HK$204.0m, up from HK$155.1m in one year. However, because it has a cash reserve of HK$11.3m, its net debt is less, at about HK$192.7m.

How Healthy Is China Biotech Services Holdings' Balance Sheet?

According to the last reported balance sheet, China Biotech Services Holdings had liabilities of HK$195.7m due within 12 months, and liabilities of HK$130.8m due beyond 12 months. On the other hand, it had cash of HK$11.3m and HK$16.2m worth of receivables due within a year. So its liabilities total HK$299.0m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since China Biotech Services Holdings has a market capitalization of HK$926.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is China Biotech Services Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for China Biotech Services Holdings

In the last year China Biotech Services Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 24%, to HK$77m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, China Biotech Services Holdings still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at HK$76m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through HK$113m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example China Biotech Services Holdings has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.