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

Warren Buffett famously said, '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. Importantly, Qyuns Therapeutics Co., Ltd. (HKG:2509) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Qyuns Therapeutics's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Qyuns Therapeutics had debt of CN¥525.7m, up from CN¥344.1m in one year. However, its balance sheet shows it holds CN¥556.6m in cash, so it actually has CN¥30.8m net cash.

How Strong Is Qyuns Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that Qyuns Therapeutics had liabilities of CN¥430.2m falling due within a year, and liabilities of CN¥332.7m due beyond that. Offsetting these obligations, it had cash of CN¥556.6m as well as receivables valued at CN¥26.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥179.4m.

Since publicly traded Qyuns Therapeutics shares are worth a total of CN¥1.64b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

View our latest analysis for Qyuns Therapeutics

In the last year Qyuns Therapeutics managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Qyuns Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Qyuns Therapeutics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥186m and booked a CN¥336m accounting loss. But the saving grace is the CN¥30.8m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Qyuns Therapeutics has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. We've identified 1 warning sign with Qyuns Therapeutics , and understanding them should be part of your investment process.

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.