Is Keymed Biosciences (HKG:2162) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Keymed Biosciences Inc. (HKG:2162) makes use of debt. But the real question is whether this debt is making the company risky.

Our free stock report includes 1 warning sign investors should be aware of before investing in Keymed Biosciences. Read for free now.

What Risk Does Debt Bring?

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 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. 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.

How Much Debt Does Keymed Biosciences Carry?

The image below, which you can click on for greater detail, shows that at December 2024 Keymed Biosciences had debt of CN¥729.6m, up from CN¥377.7m in one year. But on the other hand it also has CN¥2.16b in cash, leading to a CN¥1.43b net cash position.

How Strong Is Keymed Biosciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Keymed Biosciences had liabilities of CN¥747.7m due within 12 months and liabilities of CN¥543.6m due beyond that. Offsetting these obligations, it had cash of CN¥2.16b as well as receivables valued at CN¥114.7m due within 12 months. So it actually has CN¥979.0m more liquid assets than total liabilities.

This surplus suggests that Keymed Biosciences has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Keymed Biosciences boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Keymed Biosciences'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.

View our latest analysis for Keymed Biosciences

Over 12 months, Keymed Biosciences reported revenue of CN¥428m, which is a gain of 21%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Keymed 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 Keymed Biosciences had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥1.0b of cash and made a loss of CN¥515m. However, it has net cash of CN¥1.43b, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, Keymed Biosciences may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. To that end, you should be aware of the 1 warning sign we've spotted with Keymed Biosciences .

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.