Is JW (Cayman) Therapeutics (HKG:2126) A Risky Investment?

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 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. As with many other companies JW (Cayman) Therapeutics Co. Ltd (HKG:2126) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is JW (Cayman) Therapeutics's Debt?

The chart below, which you can click on for greater detail, shows that JW (Cayman) Therapeutics had CN¥339.8m in debt in June 2025; about the same as the year before. But it also has CN¥647.0m in cash to offset that, meaning it has CN¥307.2m net cash.

A Look At JW (Cayman) Therapeutics' Liabilities

Zooming in on the latest balance sheet data, we can see that JW (Cayman) Therapeutics had liabilities of CN¥470.3m due within 12 months and liabilities of CN¥40.5m due beyond that. Offsetting this, it had CN¥647.0m in cash and CN¥28.4m in receivables that were due within 12 months. So it actually has CN¥164.6m more liquid assets than total liabilities.

This surplus suggests that JW (Cayman) Therapeutics is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, JW (Cayman) Therapeutics 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 future earnings, more than anything, that will determine JW (Cayman) Therapeutics's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for JW (Cayman) Therapeutics

In the last year JW (Cayman) Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 2.8%, to CN¥178m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is JW (Cayman) Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year JW (Cayman) Therapeutics 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¥203m and booked a CN¥618m accounting loss. But the saving grace is the CN¥307.2m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - JW (Cayman) Therapeutics has 2 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.