Is Peijia Medical (HKG:9996) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We note that Peijia Medical Limited (HKG:9996) 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?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Peijia Medical's Debt?

As you can see below, at the end of June 2025, Peijia Medical had CN¥315.7m of debt, up from CN¥248.4m a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥608.5m in cash, so it actually has CN¥292.8m net cash.

A Look At Peijia Medical's Liabilities

We can see from the most recent balance sheet that Peijia Medical had liabilities of CN¥463.2m falling due within a year, and liabilities of CN¥151.4m due beyond that. Offsetting this, it had CN¥608.5m in cash and CN¥52.0m in receivables that were due within 12 months. So it actually has CN¥45.8m more liquid assets than total liabilities.

This state of affairs indicates that Peijia Medical's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥5.07b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Peijia Medical boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Peijia Medical'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.

Check out our latest analysis for Peijia Medical

Over 12 months, Peijia Medical reported revenue of CN¥668m, which is a gain of 29%, 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 Peijia Medical?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Peijia Medical had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥285m of cash and made a loss of CN¥225m. However, it has net cash of CN¥292.8m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, Peijia Medical may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. For riskier companies like Peijia Medical 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.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.