Shanghai Junshi Biosciences (HKG:1877) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Shanghai Junshi Biosciences Co., Ltd. (HKG:1877) makes use of debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Shanghai Junshi Biosciences

What Is Shanghai Junshi Biosciences's Net Debt?

As you can see below, at the end of March 2024, Shanghai Junshi Biosciences had CN¥3.01b of debt, up from CN¥1.35b a year ago. Click the image for more detail. However, it does have CN¥4.56b in cash offsetting this, leading to net cash of CN¥1.55b.

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¥2.97b due within 12 months and liabilities of CN¥2.04b due beyond that. Offsetting these obligations, it had cash of CN¥4.56b as well as receivables valued at CN¥722.6m due within 12 months. So it can boast CN¥276.3m more liquid assets than total liabilities.

Having regard to Shanghai Junshi Biosciences' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥24.6b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Shanghai Junshi Biosciences boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Shanghai Junshi Biosciences'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.

In the last year Shanghai Junshi Biosciences wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to CN¥1.6b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Shanghai Junshi Biosciences?

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 Shanghai Junshi Biosciences had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥2.6b and booked a CN¥2.0b accounting loss. However, it has net cash of CN¥1.55b, so it has a bit of time before it will need more capital. Shanghai Junshi Biosciences's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Shanghai Junshi Biosciences that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com