Does Sisram Medical (HKG:1696) Have A Healthy Balance Sheet?

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 Sisram Medical Ltd (HKG:1696) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Sisram Medical's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Sisram Medical had US$5.07m of debt in June 2025, down from US$5.38m, one year before. However, it does have US$62.0m in cash offsetting this, leading to net cash of US$56.9m.

How Strong Is Sisram Medical's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sisram Medical had liabilities of US$96.9m due within 12 months and liabilities of US$48.7m due beyond that. Offsetting this, it had US$62.0m in cash and US$87.8m in receivables that were due within 12 months. So it can boast US$4.29m more liquid assets than total liabilities.

Having regard to Sisram Medical's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$267.9m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Sisram Medical boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Sisram Medical

It is just as well that Sisram Medical's load is not too heavy, because its EBIT was down 31% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Sisram Medical'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Sisram Medical has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Sisram Medical recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sisram Medical has US$56.9m in net cash and a decent-looking balance sheet. So we don't have any problem with Sisram Medical's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Sisram Medical , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.