Here's Why Shanghai Junshi Biosciences (HKG:1877) Can Afford Some Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Shanghai Junshi Biosciences Co., Ltd. (HKG:1877) 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 is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Shanghai Junshi Biosciences's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Shanghai Junshi Biosciences had CN¥3.52b of debt, an increase on CN¥2.75b, over one year. However, it also had CN¥3.27b in cash, and so its net debt is CN¥253.6m.

How Strong Is Shanghai Junshi Biosciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shanghai Junshi Biosciences had liabilities of CN¥2.75b due within 12 months and liabilities of CN¥2.64b due beyond that. Offsetting these obligations, it had cash of CN¥3.27b as well as receivables valued at CN¥442.5m due within 12 months. So it has liabilities totalling CN¥1.68b more than its cash and near-term receivables, combined.

Given Shanghai Junshi Biosciences has a market capitalization of CN¥34.1b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Carrying virtually no net debt, Shanghai Junshi Biosciences has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Shanghai Junshi Biosciences 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.

View our latest analysis for Shanghai Junshi Biosciences

Over 12 months, Shanghai Junshi Biosciences reported revenue of CN¥2.5b, which is a gain of 39%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Shanghai Junshi Biosciences still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CN¥1.0b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥1.2b of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. Case in point: We've spotted 1 warning sign for Shanghai Junshi Biosciences you should be aware of.

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.