Health Check: How Prudently Does Biocytogen Pharmaceuticals (Beijing) (HKG:2315) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Biocytogen Pharmaceuticals (Beijing) Co., Ltd. (HKG:2315) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Biocytogen Pharmaceuticals (Beijing)

What Is Biocytogen Pharmaceuticals (Beijing)'s Net Debt?

As you can see below, at the end of June 2024, Biocytogen Pharmaceuticals (Beijing) had CN¥395.5m of debt, up from CN¥234.8m a year ago. Click the image for more detail. But it also has CN¥424.1m in cash to offset that, meaning it has CN¥28.6m net cash.

How Healthy Is Biocytogen Pharmaceuticals (Beijing)'s Balance Sheet?

According to the last reported balance sheet, Biocytogen Pharmaceuticals (Beijing) had liabilities of CN¥572.6m due within 12 months, and liabilities of CN¥1.12b due beyond 12 months. Offsetting this, it had CN¥424.1m in cash and CN¥192.7m in receivables that were due within 12 months. So its liabilities total CN¥1.07b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Biocytogen Pharmaceuticals (Beijing) is worth CN¥2.76b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Biocytogen Pharmaceuticals (Beijing) 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 ultimately the future profitability of the business will decide if Biocytogen Pharmaceuticals (Beijing) can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Biocytogen Pharmaceuticals (Beijing) wasn't profitable at an EBIT level, but managed to grow its revenue by 27%, to CN¥801m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Biocytogen Pharmaceuticals (Beijing)?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Biocytogen Pharmaceuticals (Beijing) 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¥88m and booked a CN¥244m accounting loss. But the saving grace is the CN¥28.6m on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Biocytogen Pharmaceuticals (Beijing) may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Biocytogen Pharmaceuticals (Beijing)'s profit, revenue, and operating cashflow have changed over the last few years.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.