David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 can see that Seres Group Co.,Ltd (SHSE:601127) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Seres GroupLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Seres GroupLtd had CN¥2.13b of debt in June 2024, down from CN¥7.00b, one year before. But on the other hand it also has CN¥46.9b in cash, leading to a CN¥44.8b net cash position.

A Look At Seres GroupLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Seres GroupLtd had liabilities of CN¥68.5b due within 12 months and liabilities of CN¥4.86b due beyond that. On the other hand, it had cash of CN¥46.9b and CN¥4.68b worth of receivables due within a year. So its liabilities total CN¥21.8b more than the combination of its cash and short-term receivables.

Since publicly traded Seres GroupLtd shares are worth a very impressive total of CN¥136.2b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Seres GroupLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Seres GroupLtd 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, Seres GroupLtd reported revenue of CN¥90b, which is a gain of 175%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is Seres GroupLtd?

Although Seres GroupLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥519m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. The good news for Seres GroupLtd shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But that doesn't change our opinion that the stock is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Seres GroupLtd you should know about.

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.