Does BIMI International Medical (NASDAQ:BIMI) 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.' 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 BIMI International Medical, Inc. (NASDAQ:BIMI) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. 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, 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. 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 BIMI International Medical

What Is BIMI International Medical's Debt?

The image below, which you can click on for greater detail, shows that BIMI International Medical had debt of US$1.93m at the end of March 2023, a reduction from US$8.27m over a year. However, it does have US$1.73m in cash offsetting this, leading to net debt of about US$196.7k.

A Look At BIMI International Medical's Liabilities

The latest balance sheet data shows that BIMI International Medical had liabilities of US$22.6m due within a year, and liabilities of US$5.05m falling due after that. Offsetting these obligations, it had cash of US$1.73m as well as receivables valued at US$3.99m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$21.9m.

This deficit casts a shadow over the US$11.6m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, BIMI International Medical would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is BIMI International Medical's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year BIMI International Medical had a loss before interest and tax, and actually shrunk its revenue by 44%, to US$12m. That makes us nervous, to say the least.

Caveat Emptor

Not only did BIMI International Medical's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$10m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of US$2.0m over the last twelve months. So suffice it to say we consider the stock to be 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 5 warning signs for BIMI International Medical (of which 4 make us uncomfortable!) you should know about.

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.