ImmuneOnco Biopharmaceuticals (Shanghai) (HKG:1541) Is Using Debt Safely

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies ImmuneOnco Biopharmaceuticals (Shanghai) Inc. (HKG:1541) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is ImmuneOnco Biopharmaceuticals (Shanghai)'s Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 ImmuneOnco Biopharmaceuticals (Shanghai) had CN¥115.4m of debt, an increase on CN¥60.0m, over one year. However, its balance sheet shows it holds CN¥752.1m in cash, so it actually has CN¥636.7m net cash.

A Look At ImmuneOnco Biopharmaceuticals (Shanghai)'s Liabilities

We can see from the most recent balance sheet that ImmuneOnco Biopharmaceuticals (Shanghai) had liabilities of CN¥214.6m falling due within a year, and liabilities of CN¥29.0m due beyond that. On the other hand, it had cash of CN¥752.1m and CN¥184.0k worth of receivables due within a year. So it actually has CN¥508.6m 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. Simply put, the fact that ImmuneOnco Biopharmaceuticals (Shanghai) has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ImmuneOnco Biopharmaceuticals (Shanghai) can strengthen its balance sheet over time. 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 ImmuneOnco Biopharmaceuticals (Shanghai)

Over 12 months, ImmuneOnco Biopharmaceuticals (Shanghai) reported revenue of CN¥80m, which is a gain of 934%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

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 we do note that ImmuneOnco Biopharmaceuticals (Shanghai) had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥138m of cash and made a loss of CN¥316m. But the saving grace is the CN¥636.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. Importantly, ImmuneOnco Biopharmaceuticals (Shanghai)'s revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with ImmuneOnco Biopharmaceuticals (Shanghai) .

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.