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 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. Importantly, Aisino Co.Ltd. (SHSE:600271) does carry debt. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is AisinoLtd's Debt?

The image below, which you can click on for greater detail, shows that AisinoLtd had debt of CN¥400.6m at the end of September 2024, a reduction from CN¥476.6m over a year. However, it does have CN¥6.74b in cash offsetting this, leading to net cash of CN¥6.34b.

A Look At AisinoLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that AisinoLtd had liabilities of CN¥3.83b due within 12 months and liabilities of CN¥272.0m due beyond that. Offsetting these obligations, it had cash of CN¥6.74b as well as receivables valued at CN¥3.04b due within 12 months. So it actually has CN¥5.68b more liquid assets than total liabilities.

This surplus liquidity suggests that AisinoLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, AisinoLtd boasts net cash, so it's fair to say it does not have a heavy debt load! 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 AisinoLtd'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.

Over 12 months, AisinoLtd made a loss at the EBIT level, and saw its revenue drop to CN¥8.3b, which is a fall of 48%. To be frank that doesn't bode well.

So How Risky Is AisinoLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that AisinoLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥5.1m of cash and made a loss of CN¥278m. Given it only has net cash of CN¥6.34b, the company may need to raise more capital if it doesn't reach break-even soon. 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 we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how AisinoLtd's profit, revenue, and operating cashflow have changed over the last few years.

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.