Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Cybrid Technologies Inc. (SHSE:603212) does use debt in its business. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does Cybrid Technologies Carry?
You can click the graphic below for the historical numbers, but it shows that Cybrid Technologies had CN¥854.6m of debt in September 2024, down from CN¥1.22b, one year before. However, because it has a cash reserve of CN¥514.4m, its net debt is less, at about CN¥340.2m.
How Healthy Is Cybrid Technologies' Balance Sheet?
The latest balance sheet data shows that Cybrid Technologies had liabilities of CN¥1.59b due within a year, and liabilities of CN¥151.0m falling due after that. Offsetting these obligations, it had cash of CN¥514.4m as well as receivables valued at CN¥1.86b due within 12 months. So it can boast CN¥632.3m more liquid assets than total liabilities.
This short term liquidity is a sign that Cybrid Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cybrid Technologies 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.
In the last year Cybrid Technologies had a loss before interest and tax, and actually shrunk its revenue by 26%, to CN¥3.1b. To be frank that doesn't bode well.
Caveat Emptor
Not only did Cybrid Technologies's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at CN¥86m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd be more likely to spend time trying to understand the stock if the company made a profit. This one is a bit too risky for our liking. 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, we've discovered 1 warning sign for Cybrid Technologies that you should be aware of before investing here.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.
