Is Sanai Health Industry Group (HKG:1889) A Risky Investment?

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.' 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, Sanai Health Industry Group Company Limited (HKG:1889) does carry debt. But should shareholders be worried about its use of debt?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Sanai Health Industry Group Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Sanai Health Industry Group had debt of CN¥56.7m, up from CN¥41.8m in one year. But on the other hand it also has CN¥351.4m in cash, leading to a CN¥294.6m net cash position.

How Strong Is Sanai Health Industry Group's Balance Sheet?

We can see from the most recent balance sheet that Sanai Health Industry Group had liabilities of CN¥142.9m falling due within a year, and liabilities of CN¥3.37m due beyond that. Offsetting this, it had CN¥351.4m in cash and CN¥16.8m in receivables that were due within 12 months. So it can boast CN¥221.9m more liquid assets than total liabilities.

This surplus strongly suggests that Sanai Health Industry Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Sanai Health Industry Group has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Sanai Health Industry Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Sanai Health Industry Group

In the last year Sanai Health Industry Group wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to CN¥96m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Sanai Health Industry Group?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Sanai Health Industry Group had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥2.0m and booked a CN¥33m accounting loss. Given it only has net cash of CN¥294.6m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Sanai Health Industry Group has 3 warning signs we think 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.