Ascentage Pharma Group International (HKG:6855) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Ascentage Pharma Group International (HKG:6855) does use debt in its business. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Ascentage Pharma Group International

What Is Ascentage Pharma Group International's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2022 Ascentage Pharma Group International had debt of CN¥1.78b, up from CN¥1.07b in one year. However, it also had CN¥1.50b in cash, and so its net debt is CN¥271.4m.

How Healthy Is Ascentage Pharma Group International's Balance Sheet?

The latest balance sheet data shows that Ascentage Pharma Group International had liabilities of CN¥881.2m due within a year, and liabilities of CN¥1.54b falling due after that. Offsetting these obligations, it had cash of CN¥1.50b as well as receivables valued at CN¥61.5m due within 12 months. So its liabilities total CN¥856.0m more than the combination of its cash and short-term receivables.

Given Ascentage Pharma Group International has a market capitalization of CN¥5.72b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Ascentage Pharma Group International 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.

In the last year Ascentage Pharma Group International wasn't profitable at an EBIT level, but managed to grow its revenue by 651%, to CN¥210m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

While we can certainly appreciate Ascentage Pharma Group International's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping CN¥883m. 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. However, it doesn't help that it burned through CN¥891m of cash over the last year. So in short it's a really risky stock. 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. For instance, we've identified 2 warning signs for Ascentage Pharma Group International that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.