Is Jacobio Pharmaceuticals Group (HKG:1167) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Jacobio Pharmaceuticals Group Co., Ltd. (HKG:1167) does carry debt. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Jacobio Pharmaceuticals Group

What Is Jacobio Pharmaceuticals Group's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2023 Jacobio Pharmaceuticals Group had debt of CN¥73.6m, up from none in one year. However, it does have CN¥1.15b in cash offsetting this, leading to net cash of CN¥1.07b.

How Healthy Is Jacobio Pharmaceuticals Group's Balance Sheet?

The latest balance sheet data shows that Jacobio Pharmaceuticals Group had liabilities of CN¥205.1m due within a year, and liabilities of CN¥182.0m falling due after that. Offsetting this, it had CN¥1.15b in cash and CN¥20.6m in receivables that were due within 12 months. So it can boast CN¥781.3m more liquid assets than total liabilities.

This surplus strongly suggests that Jacobio Pharmaceuticals Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Jacobio Pharmaceuticals Group 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 Jacobio Pharmaceuticals 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.

In the last year Jacobio Pharmaceuticals Group had a loss before interest and tax, and actually shrunk its revenue by 34%, to CN¥64m. That makes us nervous, to say the least.

So How Risky Is Jacobio Pharmaceuticals Group?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Jacobio Pharmaceuticals Group had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥403m of cash and made a loss of CN¥359m. But the saving grace is the CN¥1.07b on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Jacobio Pharmaceuticals Group is showing 1 warning sign in our investment analysis , 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.

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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.