Is Ascentage Pharma Group International (HKG:6855) A Risky Investment?

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. We can see that Ascentage Pharma Group International (HKG:6855) does use debt in its business. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Ascentage Pharma Group International

How Much Debt Does Ascentage Pharma Group International Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Ascentage Pharma Group International had CN¥1.54b of debt, an increase on CN¥646.5m, over one year. But it also has CN¥1.70b in cash to offset that, meaning it has CN¥158.6m net cash.

A Look At Ascentage Pharma Group International's Liabilities

The latest balance sheet data shows that Ascentage Pharma Group International had liabilities of CN¥612.3m due within a year, and liabilities of CN¥1.55b falling due after that. On the other hand, it had cash of CN¥1.70b and CN¥80.7m worth of receivables due within a year. So it has liabilities totalling CN¥378.7m more than its cash and near-term receivables, combined.

Of course, Ascentage Pharma Group International has a market capitalization of CN¥3.94b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Ascentage Pharma Group International also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. 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 386%, to CN¥111m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Ascentage Pharma Group International?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Ascentage Pharma Group International 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¥1.0b and booked a CN¥812m accounting loss. But at least it has CN¥158.6m on the balance sheet to spend on growth, near-term. The good news for shareholders is that Ascentage Pharma Group International has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Ascentage Pharma Group International .

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.