Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that NSFOCUS Technologies Group Co., Ltd. (SZSE:300369) does have debt on its balance sheet. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for NSFOCUS Technologies Group
What Is NSFOCUS Technologies Group's Net Debt?
As you can see below, at the end of June 2023, NSFOCUS Technologies Group had CN¥35.9m of debt, up from CN¥33.5m a year ago. Click the image for more detail. However, it does have CN¥535.4m in cash offsetting this, leading to net cash of CN¥499.5m.
![debt-equity-history-analysis](https://usnewsfile.moomoo.com/public/MM-PersistNewsContentImage/7781/20231023/0-ade4db26abdeb1b58381f5dc4d0eb107-0-f6beaa23adbf2ad7d3d659a0823b5fe1.png/big)
How Healthy Is NSFOCUS Technologies Group's Balance Sheet?
The latest balance sheet data shows that NSFOCUS Technologies Group had liabilities of CN¥865.1m due within a year, and liabilities of CN¥132.2m falling due after that. Offsetting this, it had CN¥535.4m in cash and CN¥1.71b in receivables that were due within 12 months. So it can boast CN¥1.25b more liquid assets than total liabilities.
This excess liquidity suggests that NSFOCUS Technologies Group is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, NSFOCUS Technologies Group boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if NSFOCUS Technologies Group can strengthen its balance sheet over time. 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, NSFOCUS Technologies Group made a loss at the EBIT level, and saw its revenue drop to CN¥2.5b, which is a fall of 6.2%. We would much prefer see growth.
So How Risky Is NSFOCUS Technologies Group?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that NSFOCUS Technologies Group had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥427m and booked a CN¥170m accounting loss. With only CN¥499.5m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For example - NSFOCUS Technologies Group has 1 warning sign we think you should be aware of.
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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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.