Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We note that China Regenerative Medicine International Limited (HKG: 8158) has debt on its balance sheet. But does this debt worry shareholders?
What risk does debt entail?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. By replacing dilution, however, debt can be a very good tool for companies 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 flow and debt together.
Check out our latest review for China Regenerative Medicine International
What is the debt of China Regenerative Medicine International?
You can click on the graph below for historical figures, but it shows that China Regenerative Medicine International was in debt of HK $ 21.2million in June 2021, up from HK $ 220.2million a year earlier. However, because he has a cash reserve of HK $ 11.7 million, his net debt is less, at around HK $ 9.47 million.
A look at the responsibilities of China Regenerative Medicine International
Zooming in on the latest balance sheet data, we can see that China Regenerative Medicine International had a liability of HK $ 74.4 million due within 12 months and no liabilities beyond. On the other hand, he had HK $ 11.7 million in cash and HK $ 60.4 million in receivables due within one year. It therefore has liabilities totaling HK $ 2.23 million more than its cash and short-term receivables combined.
This fact indicates that China Regenerative Medicine International’s balance sheet looks quite strong, as its total liabilities roughly equal its liquid assets. So the HK $ 884.8million company is highly unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. Having virtually no net debt, China Regenerative Medicine International does indeed have very small debt. There is no doubt that we learn the most about debt from the balance sheet. But it is the profits of China Regenerative Medicine International that will influence the balance sheet in the future. So if you want to know more about its profits, it may be worth checking out this long term profit trend chart.
Last year, China Regenerative Medicine International was not profitable on EBIT level, but managed to increase its turnover by 341%, to HK $ 251 million. It’s practically the hole-in-one for revenue growth!
While we can certainly appreciate the revenue growth of China Regenerative Medicine International, its earnings before interest and taxes (EBIT) are not ideal. Its EBIT loss was HK $ 95 million. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we believe the record is far from up to par, although it could improve over time. However, it doesn’t help that he spent HK $ 121million in cash in the past year. In short, it’s a really risky title. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. Note that China Regenerative Medicine International shows 4 warning signs in our investment analysis , and 2 of them should not be ignored …
If you want to invest in businesses that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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