Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Ubtech Robotics Corp Ltd (HKG:9880) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Ubtech Robotics's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2023 Ubtech Robotics had debt of CN¥1.45b, up from CN¥622.7m in one year. However, because it has a cash reserve of CN¥541.4m, its net debt is less, at about CN¥912.1m.

How Strong Is Ubtech Robotics' Balance Sheet?

The latest balance sheet data shows that Ubtech Robotics had liabilities of CN¥1.95b due within a year, and liabilities of CN¥724.6m falling due after that. On the other hand, it had cash of CN¥541.4m and CN¥1.67b worth of receivables due within a year. So its liabilities total CN¥464.4m more than the combination of its cash and short-term receivables.

Having regard to Ubtech Robotics' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥59.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. 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 Ubtech Robotics'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, Ubtech Robotics reported revenue of CN¥1.1b, which is a gain of 4.7%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Ubtech Robotics had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CN¥1.2b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥1.5b of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. Be aware that Ubtech Robotics is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

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.

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