Uni-Bio Science Group (HKG:690) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Uni-Bio Science Group Limited (HKG:690) makes use of debt. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Uni-Bio Science Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Uni-Bio Science Group had HK$99.6m of debt, an increase on HK$82.8m, over one year. However, its balance sheet shows it holds HK$195.4m in cash, so it actually has HK$95.8m net cash.

How Healthy Is Uni-Bio Science Group's Balance Sheet?

According to the last reported balance sheet, Uni-Bio Science Group had liabilities of HK$100.6m due within 12 months, and liabilities of HK$72.6m due beyond 12 months. On the other hand, it had cash of HK$195.4m and HK$128.7m worth of receivables due within a year. So it can boast HK$150.9m more liquid assets than total liabilities.

This excess liquidity suggests that Uni-Bio Science Group is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Uni-Bio Science Group has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Uni-Bio Science Group

Uni-Bio Science Group's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Uni-Bio Science Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Uni-Bio Science Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Uni-Bio Science Group's free cash flow amounted to 47% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Uni-Bio Science Group has HK$95.8m in net cash and a decent-looking balance sheet. So we don't think Uni-Bio Science Group's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Uni-Bio Science Group (of which 1 is significant!) you should know about.

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.