David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Gosuncn Technology Group Co., Ltd. (SZSE:300098) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Gosuncn Technology Group's Net Debt?

The image below, which you can click on for greater detail, shows that Gosuncn Technology Group had debt of CN¥251.0m at the end of September 2023, a reduction from CN¥296.4m over a year. However, its balance sheet shows it holds CN¥548.3m in cash, so it actually has CN¥297.2m net cash.

How Healthy Is Gosuncn Technology Group's Balance Sheet?

The latest balance sheet data shows that Gosuncn Technology Group had liabilities of CN¥1.66b due within a year, and liabilities of CN¥340.6m falling due after that. Offsetting this, it had CN¥548.3m in cash and CN¥1.87b in receivables that were due within 12 months. So it can boast CN¥411.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Gosuncn Technology Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Gosuncn Technology Group boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Gosuncn Technology Group'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, Gosuncn Technology Group made a loss at the EBIT level, and saw its revenue drop to CN¥1.9b, which is a fall of 32%. That makes us nervous, to say the least.

So How Risky Is Gosuncn Technology Group?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Gosuncn Technology Group had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥41m and booked a CN¥266m accounting loss. But the saving grace is the CN¥297.2m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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 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 Gosuncn Technology Group's profit, revenue, and operating cashflow have changed over the last few years.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.