Does China Regenerative Medicine International (HKG:8158) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 note that China Regenerative Medicine International Limited (HKG:8158) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for China Regenerative Medicine International

How Much Debt Does China Regenerative Medicine International Carry?

You can click the graphic below for the historical numbers, but it shows that China Regenerative Medicine International had HK$21.2m of debt in June 2021, down from HK$220.2m, one year before. However, because it has a cash reserve of HK$11.7m, its net debt is less, at about HK$9.47m.

A Look At China Regenerative Medicine International's Liabilities

Zooming in on the latest balance sheet data, we can see that China Regenerative Medicine International had liabilities of HK$74.4m due within 12 months and no liabilities due beyond that. On the other hand, it had cash of HK$11.7m and HK$60.4m worth of receivables due within a year. So it has liabilities totalling HK$2.23m more than its cash and near-term receivables, combined.

This state of affairs indicates that China Regenerative Medicine International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the HK$884.8m company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, China Regenerative Medicine International has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But it is China Regenerative Medicine International's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year China Regenerative Medicine International wasn't profitable at an EBIT level, but managed to grow its revenue by 341%, to HK$251m. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

While we can certainly appreciate China Regenerative Medicine International's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping HK$95m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through HK$121m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that China Regenerative Medicine International is showing 4 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

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.
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