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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. We note that Tianjin TEDA Biomedical Engineering Company Limited (HKG:8189) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Tianjin TEDA Biomedical Engineering
What Is Tianjin TEDA Biomedical Engineering's Debt?
As you can see below, at the end of June 2019, Tianjin TEDA Biomedical Engineering had CN¥48.2m of debt, up from CN¥78.6 a year ago. Click the image for more detail. But on the other hand it also has CN¥69.6m in cash, leading to a CN¥21.4m net cash position.
How Healthy Is Tianjin TEDA Biomedical Engineering's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Tianjin TEDA Biomedical Engineering had liabilities of CN¥175.4m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of CN¥69.6m as well as receivables valued at CN¥150.4m due within 12 months. So it actually has CN¥44.5m more liquid assets than total liabilities.
This surplus suggests that Tianjin TEDA Biomedical Engineering is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Tianjin TEDA Biomedical Engineering 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 it is Tianjin TEDA Biomedical Engineering's earnings that will influence how the balance sheet holds up in the future. 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.