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 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. Importantly, Tinavi Medical Technologies Co.,Ltd. (SHSE:688277) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Tinavi Medical TechnologiesLtd Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Tinavi Medical TechnologiesLtd had debt of CN¥225.0m, up from CN¥38.9m in one year. However, its balance sheet shows it holds CN¥309.1m in cash, so it actually has CN¥84.1m net cash.

How Healthy Is Tinavi Medical TechnologiesLtd's Balance Sheet?

The latest balance sheet data shows that Tinavi Medical TechnologiesLtd had liabilities of CN¥140.6m due within a year, and liabilities of CN¥209.1m falling due after that. On the other hand, it had cash of CN¥309.1m and CN¥64.7m worth of receivables due within a year. So it actually has CN¥24.0m more liquid assets than total liabilities.

Having regard to Tinavi Medical TechnologiesLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥3.76b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Tinavi Medical TechnologiesLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Tinavi Medical TechnologiesLtd'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 Tinavi Medical TechnologiesLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to CN¥199m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Tinavi Medical TechnologiesLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Tinavi Medical TechnologiesLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥351m of cash and made a loss of CN¥175m. With only CN¥84.1m on the balance sheet, it would appear that its going to need to raise capital again 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. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Tinavi Medical TechnologiesLtd that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

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