Does Jacobio Pharmaceuticals Group (HKG:1167) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Jacobio Pharmaceuticals Group Co., Ltd. (HKG:1167) makes use of debt. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Jacobio Pharmaceuticals Group

What Is Jacobio Pharmaceuticals Group's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Jacobio Pharmaceuticals Group had CN¥63.8m of debt, an increase on CN¥60.0m, over one year. But on the other hand it also has CN¥1.06b in cash, leading to a CN¥996.4m net cash position.

A Look At Jacobio Pharmaceuticals Group's Liabilities

According to the last reported balance sheet, Jacobio Pharmaceuticals Group had liabilities of CN¥179.7m due within 12 months, and liabilities of CN¥226.5m due beyond 12 months. Offsetting this, it had CN¥1.06b in cash and CN¥19.1m in receivables that were due within 12 months. So it can boast CN¥673.0m more liquid assets than total liabilities.

This luscious liquidity implies that Jacobio Pharmaceuticals Group'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 Jacobio Pharmaceuticals Group has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Jacobio Pharmaceuticals Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Jacobio Pharmaceuticals Group had a loss before interest and tax, and actually shrunk its revenue by 72%, to CN¥23m. To be frank that doesn't bode well.

So How Risky Is Jacobio Pharmaceuticals Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Jacobio Pharmaceuticals Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥334m of cash and made a loss of CN¥362m. While this does make the company a bit risky, it's important to remember it has net cash of CN¥996.4m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Jacobio Pharmaceuticals Group you should know about.

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.