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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Shinry Technologies Co., Ltd. (SZSE:300745) does use debt in its business. But the real question is whether this debt is making the company risky.
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. If things get really bad, the lenders can take control of the business. 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.
Check out our latest analysis for Shinry Technologies
How Much Debt Does Shinry Technologies Carry?
As you can see below, Shinry Technologies had CN¥365.0m of debt at September 2023, down from CN¥388.7m a year prior. However, its balance sheet shows it holds CN¥1.37b in cash, so it actually has CN¥1.01b net cash.
A Look At Shinry Technologies' Liabilities
According to the last reported balance sheet, Shinry Technologies had liabilities of CN¥1.24b due within 12 months, and liabilities of CN¥122.6m due beyond 12 months. On the other hand, it had cash of CN¥1.37b and CN¥1.12b worth of receivables due within a year. So it can boast CN¥1.13b more liquid assets than total liabilities.
It's good to see that Shinry Technologies has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Shinry Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Shinry Technologies can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Shinry Technologies reported revenue of CN¥1.5b, which is a gain of 15%, 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 Shinry Technologies?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Shinry Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥362m of cash and made a loss of CN¥54m. With only CN¥1.01b 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. 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. For instance, we've identified 2 warning signs for Shinry Technologies that you should be aware of.
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.