Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Jiangsu Bioperfectus Technologies Co., Ltd. (SHSE:688399) makes use of debt. 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.

What Is Jiangsu Bioperfectus Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Jiangsu Bioperfectus Technologies had CN¥310.0m of debt, an increase on CN¥274.9m, over one year. But it also has CN¥2.63b in cash to offset that, meaning it has CN¥2.32b net cash.

A Look At Jiangsu Bioperfectus Technologies' Liabilities

The latest balance sheet data shows that Jiangsu Bioperfectus Technologies had liabilities of CN¥454.8m due within a year, and liabilities of CN¥133.3m falling due after that. Offsetting these obligations, it had cash of CN¥2.63b as well as receivables valued at CN¥82.1m due within 12 months. So it can boast CN¥2.13b more liquid assets than total liabilities.

This surplus strongly suggests that Jiangsu Bioperfectus Technologies has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Jiangsu Bioperfectus Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Jiangsu Bioperfectus Technologies will need earnings to service that debt. 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.

Over 12 months, Jiangsu Bioperfectus Technologies made a loss at the EBIT level, and saw its revenue drop to CN¥400m, which is a fall of 90%. To be frank that doesn't bode well.

So How Risky Is Jiangsu Bioperfectus Technologies?

While Jiangsu Bioperfectus Technologies lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥78m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. There's no doubt the next few years will be crucial to how the business matures. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Jiangsu Bioperfectus Technologies's profit, revenue, and operating cashflow have changed over the last few years.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.