Does CanSino Biologics (HKG:6185) Have A Healthy Balance Sheet?

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, CanSino Biologics Inc. (HKG:6185) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

What Is CanSino Biologics's Debt?

The image below, which you can click on for greater detail, shows that CanSino Biologics had debt of CN¥2.10b at the end of September 2024, a reduction from CN¥2.46b over a year. However, it does have CN¥3.28b in cash offsetting this, leading to net cash of CN¥1.18b.

How Strong Is CanSino Biologics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CanSino Biologics had liabilities of CN¥1.77b due within 12 months and liabilities of CN¥1.15b due beyond that. On the other hand, it had cash of CN¥3.28b and CN¥687.3m worth of receivables due within a year. So it can boast CN¥1.04b more liquid assets than total liabilities.

This surplus suggests that CanSino Biologics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that CanSino Biologics has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if CanSino Biologics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for CanSino Biologics

Over 12 months, CanSino Biologics reported revenue of CN¥846m, which is a gain of 137%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is CanSino Biologics?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year CanSino Biologics 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¥936m and booked a CN¥379m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥1.18b. That means it could keep spending at its current rate for more than two years. Importantly, CanSino Biologics's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. For riskier companies like CanSino Biologics I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.