The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, InfoVision Optoelectronics (Kunshan) Co., Ltd. (SHSE:688055) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is InfoVision Optoelectronics (Kunshan)'s Net Debt?

As you can see below, at the end of March 2024, InfoVision Optoelectronics (Kunshan) had CN¥1.54b of debt, up from CN¥1.08b a year ago. Click the image for more detail. But on the other hand it also has CN¥2.09b in cash, leading to a CN¥550.0m net cash position.

A Look At InfoVision Optoelectronics (Kunshan)'s Liabilities

According to the last reported balance sheet, InfoVision Optoelectronics (Kunshan) had liabilities of CN¥2.63b due within 12 months, and liabilities of CN¥172.7m due beyond 12 months. Offsetting these obligations, it had cash of CN¥2.09b as well as receivables valued at CN¥589.9m due within 12 months. So it has liabilities totalling CN¥131.0m more than its cash and near-term receivables, combined.

This state of affairs indicates that InfoVision Optoelectronics (Kunshan)'s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥11.3b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, InfoVision Optoelectronics (Kunshan) also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is InfoVision Optoelectronics (Kunshan)'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.

Over 12 months, InfoVision Optoelectronics (Kunshan) reported revenue of CN¥3.9b, which is a gain of 7.7%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is InfoVision Optoelectronics (Kunshan)?

Although InfoVision Optoelectronics (Kunshan) had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥466m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with InfoVision Optoelectronics (Kunshan) .

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.

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