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.' 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. Importantly, Wuxi Online Offline Communication Information Technology Co., Ltd. (SZSE:300959) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Wuxi Online Offline Communication Information Technology Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Wuxi Online Offline Communication Information Technology had CN¥52.9m of debt, an increase on CN¥32.9m, over one year. But on the other hand it also has CN¥432.6m in cash, leading to a CN¥379.7m net cash position.

How Healthy Is Wuxi Online Offline Communication Information Technology's Balance Sheet?

According to the last reported balance sheet, Wuxi Online Offline Communication Information Technology had liabilities of CN¥243.1m due within 12 months, and liabilities of CN¥365.0k due beyond 12 months. Offsetting these obligations, it had cash of CN¥432.6m as well as receivables valued at CN¥379.0m due within 12 months. So it can boast CN¥568.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Wuxi Online Offline Communication Information Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Wuxi Online Offline Communication Information Technology has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Wuxi Online Offline Communication Information Technology's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Wuxi Online Offline Communication Information Technology had a loss before interest and tax, and actually shrunk its revenue by 32%, to CN¥1.2b. That makes us nervous, to say the least.

So How Risky Is Wuxi Online Offline Communication Information Technology?

Although Wuxi Online Offline Communication Information Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥9.9m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Wuxi Online Offline Communication Information Technology you should be aware of, and 2 of them can't be ignored.

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.