Genscript Biotech (HKG:1548) Has A Pretty 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.' 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 Genscript Biotech Corporation (HKG:1548) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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 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.

How Much Debt Does Genscript Biotech Carry?

As you can see below, Genscript Biotech had US$485.4m of debt at June 2025, down from US$877.2m a year prior. However, it does have US$938.4m in cash offsetting this, leading to net cash of US$453.0m.

How Strong Is Genscript Biotech's Balance Sheet?

We can see from the most recent balance sheet that Genscript Biotech had liabilities of US$600.5m falling due within a year, and liabilities of US$412.8m due beyond that. Offsetting this, it had US$938.4m in cash and US$132.2m in receivables that were due within 12 months. So it actually has US$57.2m more liquid assets than total liabilities.

Having regard to Genscript Biotech's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$5.07b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Genscript Biotech boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Genscript Biotech

It was also good to see that despite losing money on the EBIT line last year, Genscript Biotech turned things around in the last 12 months, delivering and EBIT of US$179m. 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 Genscript Biotech's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Genscript Biotech may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, Genscript Biotech recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Genscript Biotech has net cash of US$453.0m, as well as more liquid assets than liabilities. So we are not troubled with Genscript Biotech's debt use. 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. Be aware that Genscript Biotech is showing 1 warning sign in our investment analysis , 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.