Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that C*Core Technology Co., Ltd. (SHSE:688262) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. 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.

How Much Debt Does C*Core Technology Carry?

As you can see below, C*Core Technology had CN¥170.0m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has CN¥991.4m in cash, leading to a CN¥821.4m net cash position.

How Strong Is C*Core Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that C*Core Technology had liabilities of CN¥529.8m due within 12 months and liabilities of CN¥26.1m due beyond that. Offsetting this, it had CN¥991.4m in cash and CN¥284.0m in receivables that were due within 12 months. So it can boast CN¥719.4m more liquid assets than total liabilities.

This surplus suggests that C*Core Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, C*Core Technology 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 it is future earnings, more than anything, that will determine C*Core Technology'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, C*Core Technology made a loss at the EBIT level, and saw its revenue drop to CN¥464m, which is a fall of 24%. To be frank that doesn't bode well.

So How Risky Is C*Core Technology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months C*Core Technology lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥601m and booked a CN¥190m accounting loss. With only CN¥821.4m 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. For riskier companies like C*Core Technology I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.