Would Tianda Pharmaceuticals (HKG:455) Be Better Off With Less Debt?

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. We can see that Tianda Pharmaceuticals Limited (HKG:455) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Tianda Pharmaceuticals's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Tianda Pharmaceuticals had debt of HK$124.9m, up from HK$91.9m in one year. However, because it has a cash reserve of HK$98.3m, its net debt is less, at about HK$26.6m.

How Healthy Is Tianda Pharmaceuticals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tianda Pharmaceuticals had liabilities of HK$233.5m due within 12 months and liabilities of HK$55.8m due beyond that. Offsetting these obligations, it had cash of HK$98.3m as well as receivables valued at HK$60.5m due within 12 months. So it has liabilities totalling HK$130.5m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Tianda Pharmaceuticals has a market capitalization of HK$262.3m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Tianda Pharmaceuticals will need earnings to service that debt. 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.

View our latest analysis for Tianda Pharmaceuticals

In the last year Tianda Pharmaceuticals had a loss before interest and tax, and actually shrunk its revenue by 19%, to HK$310m. We would much prefer see growth.

Caveat Emptor

Not only did Tianda Pharmaceuticals's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping HK$61m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of HK$67m into a profit. In the meantime, we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Tianda Pharmaceuticals is showing 2 warning signs in our investment analysis , and 1 of those is significant...

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.