Health Check: How Prudently Does ImmuneOnco Biopharmaceuticals (Shanghai) (HKG:1541) Use Debt?

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.' 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. As with many other companies ImmuneOnco Biopharmaceuticals (Shanghai) Inc. (HKG:1541) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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 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 ImmuneOnco Biopharmaceuticals (Shanghai)

What Is ImmuneOnco Biopharmaceuticals (Shanghai)'s Debt?

As you can see below, at the end of December 2023, ImmuneOnco Biopharmaceuticals (Shanghai) had CN¥60.0m of debt, up from none a year ago. Click the image for more detail. However, it does have CN¥608.6m in cash offsetting this, leading to net cash of CN¥548.6m.

A Look At ImmuneOnco Biopharmaceuticals (Shanghai)'s Liabilities

Zooming in on the latest balance sheet data, we can see that ImmuneOnco Biopharmaceuticals (Shanghai) had liabilities of CN¥115.9m due within 12 months and liabilities of CN¥10.4m due beyond that. Offsetting this, it had CN¥608.6m in cash and CN¥1.08m in receivables that were due within 12 months. So it actually has CN¥483.3m more liquid assets than total liabilities.

This short term liquidity is a sign that ImmuneOnco Biopharmaceuticals (Shanghai) could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, ImmuneOnco Biopharmaceuticals (Shanghai) boasts net cash, so it's fair to say it does not have a heavy debt load! 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 ImmuneOnco Biopharmaceuticals (Shanghai)'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.

Given its lack of meaningful operating revenue, ImmuneOnco Biopharmaceuticals (Shanghai) shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is ImmuneOnco Biopharmaceuticals (Shanghai)?

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 ImmuneOnco Biopharmaceuticals (Shanghai) had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥370m of cash and made a loss of CN¥379m. However, it has net cash of CN¥548.6m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, ImmuneOnco Biopharmaceuticals (Shanghai) may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for ImmuneOnco Biopharmaceuticals (Shanghai) 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.