Is Qyuns Therapeutics (HKG:2509) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Qyuns Therapeutics Co., Ltd. (HKG:2509) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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 Qyuns Therapeutics

What Is Qyuns Therapeutics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Qyuns Therapeutics had CN¥498.6m of debt, an increase on CN¥321.9m, over one year. However, it does have CN¥629.6m in cash offsetting this, leading to net cash of CN¥131.0m.

How Strong Is Qyuns Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that Qyuns Therapeutics had liabilities of CN¥382.9m falling due within a year, and liabilities of CN¥329.1m due beyond that. On the other hand, it had cash of CN¥629.6m and CN¥1.53m worth of receivables due within a year. So it has liabilities totalling CN¥80.8m more than its cash and near-term receivables, combined.

This state of affairs indicates that Qyuns Therapeutics' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥5.62b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Qyuns Therapeutics 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 Qyuns Therapeutics's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Given its lack of meaningful operating revenue, Qyuns Therapeutics shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Qyuns Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Qyuns Therapeutics 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¥207m and booked a CN¥422m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥131.0m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Qyuns Therapeutics you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.