Does Kintor Pharmaceutical (HKG:9939) 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. We note that Kintor Pharmaceutical Limited (HKG:9939) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Kintor Pharmaceutical

What Is Kintor Pharmaceutical's Debt?

The image below, which you can click on for greater detail, shows that Kintor Pharmaceutical had debt of CN¥154.9m at the end of December 2021, a reduction from CN¥218.5m over a year. However, its balance sheet shows it holds CN¥1.06b in cash, so it actually has CN¥901.8m net cash.

How Healthy Is Kintor Pharmaceutical's Balance Sheet?

The latest balance sheet data shows that Kintor Pharmaceutical had liabilities of CN¥219.7m due within a year, and liabilities of CN¥193.1m falling due after that. On the other hand, it had cash of CN¥1.06b and CN¥141.3m worth of receivables due within a year. So it can boast CN¥785.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Kintor Pharmaceutical could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Kintor Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kintor Pharmaceutical can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

While it hasn't made a profit, at least Kintor Pharmaceutical booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is Kintor Pharmaceutical?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Kintor Pharmaceutical had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥1.2b of cash and made a loss of CN¥842m. Given it only has net cash of CN¥901.8m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Kintor Pharmaceutical you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.