Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that Burning Rock Biotech Limited (NASDAQ:BNR) does use debt in its business. But the real question is whether this debt is making the company risky.
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.
See our latest analysis for Burning Rock Biotech
What Is Burning Rock Biotech's Net Debt?
As you can see below, Burning Rock Biotech had CN¥48.6m of debt at June 2020, down from CN¥263.9m a year prior. However, its balance sheet shows it holds CN¥2.57b in cash, so it actually has CN¥2.52b net cash.
A Look At Burning Rock Biotech's Liabilities
We can see from the most recent balance sheet that Burning Rock Biotech had liabilities of CN¥224.2m falling due within a year, and liabilities of CN¥34.6m due beyond that. Offsetting these obligations, it had cash of CN¥2.57b as well as receivables valued at CN¥101.2m due within 12 months. So it actually has CN¥2.41b more liquid assets than total liabilities.
It's good to see that Burning Rock Biotech has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Burning Rock Biotech 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 it is future earnings, more than anything, that will determine Burning Rock Biotech's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Burning Rock Biotech reported revenue of CN¥367m, which is a gain of 24%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is Burning Rock Biotech?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Burning Rock Biotech had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥56.3m and booked a CN¥388.5m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥2.52b. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Burning Rock Biotech may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For example, we've discovered 2 warning signs for Burning Rock Biotech that you should be aware of before investing here.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
"load" - Google News
September 12, 2020 at 09:15PM
https://ift.tt/32oRhyY
Is Burning Rock Biotech (NASDAQ:BNR) Weighed On By Its Debt Load? - Yahoo Finance
"load" - Google News
https://ift.tt/2SURvcJ
https://ift.tt/3bWWEYd
Bagikan Berita Ini
0 Response to "Is Burning Rock Biotech (NASDAQ:BNR) Weighed On By Its Debt Load? - Yahoo Finance"
Post a Comment