Stock Analysis

Does MicroPort Scientific (HKG:853) Have A Healthy Balance Sheet?

SEHK:853
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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.' 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 MicroPort Scientific Corporation (HKG:853) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for MicroPort Scientific

What Is MicroPort Scientific's Net Debt?

As you can see below, at the end of June 2023, MicroPort Scientific had US$1.42b of debt, up from US$1.09b a year ago. Click the image for more detail. However, it does have US$982.5m in cash offsetting this, leading to net debt of about US$440.9m.

debt-equity-history-analysis
SEHK:853 Debt to Equity History October 17th 2023

How Strong Is MicroPort Scientific's Balance Sheet?

According to the last reported balance sheet, MicroPort Scientific had liabilities of US$1.36b due within 12 months, and liabilities of US$935.7m due beyond 12 months. Offsetting this, it had US$982.5m in cash and US$210.5m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.10b.

This deficit isn't so bad because MicroPort Scientific is worth US$2.83b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 MicroPort Scientific's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year MicroPort Scientific wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to US$918m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months MicroPort Scientific produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$476m 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. However, it doesn't help that it burned through US$595m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - MicroPort Scientific has 1 warning sign we think 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.

Valuation is complex, but we're helping make it simple.

Find out whether MicroPort Scientific is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.