Consun Pharmaceutical Group (HKG:1681) Could Easily Take On More Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Consun Pharmaceutical Group Limited (HKG:1681) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Consun Pharmaceutical Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Consun Pharmaceutical Group had CN¥239.3m of debt in June 2025, down from CN¥507.7m, one year before. But on the other hand it also has CN¥4.04b in cash, leading to a CN¥3.80b net cash position.

A Look At Consun Pharmaceutical Group's Liabilities

According to the last reported balance sheet, Consun Pharmaceutical Group had liabilities of CN¥1.35b due within 12 months, and liabilities of CN¥98.4m due beyond 12 months. Offsetting this, it had CN¥4.04b in cash and CN¥394.5m in receivables that were due within 12 months. So it actually has CN¥2.99b more liquid assets than total liabilities.

This excess liquidity suggests that Consun Pharmaceutical Group is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Consun Pharmaceutical Group has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Consun Pharmaceutical Group

Also positive, Consun Pharmaceutical Group grew its EBIT by 22% in the last year, and that should make it easier to pay down debt, going forward. 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 Consun Pharmaceutical Group 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Consun Pharmaceutical Group 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. During the last three years, Consun Pharmaceutical Group generated free cash flow amounting to a very robust 97% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Consun Pharmaceutical Group has CN¥3.80b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 97% of that EBIT to free cash flow, bringing in CN¥978m. So is Consun Pharmaceutical Group's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Consun Pharmaceutical Group is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.