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. Importantly, Chongqing Genrix Biopharmaceutical Co., Ltd. (SHSE:688443) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Chongqing Genrix Biopharmaceutical Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Chongqing Genrix Biopharmaceutical had CN¥748.0m of debt, an increase on CN¥616.8m, over one year. However, it does have CN¥2.56b in cash offsetting this, leading to net cash of CN¥1.81b.

How Strong Is Chongqing Genrix Biopharmaceutical's Balance Sheet?

The latest balance sheet data shows that Chongqing Genrix Biopharmaceutical had liabilities of CN¥144.3m due within a year, and liabilities of CN¥782.9m falling due after that. Offsetting these obligations, it had cash of CN¥2.56b as well as receivables valued at CN¥17.0m due within 12 months. So it actually has CN¥1.65b more liquid assets than total liabilities.

It's good to see that Chongqing Genrix Biopharmaceutical has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Chongqing Genrix Biopharmaceutical 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 Chongqing Genrix Biopharmaceutical can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Chongqing Genrix Biopharmaceutical reported revenue of CN¥14m, which is a gain of 8,549%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Chongqing Genrix Biopharmaceutical?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Chongqing Genrix Biopharmaceutical had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥571m and booked a CN¥779m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥1.81b. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that Chongqing Genrix Biopharmaceutical has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Chongqing Genrix Biopharmaceutical that you should be aware of before investing here.

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.