Does Lifan Technology(Group)Co.Ltd (SHSE:601777) Have A Healthy Balance Sheet?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Lifan Technology(Group)Co.,Ltd. (SHSE:601777) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Lifan Technology(Group)Co.Ltd

How Much Debt Does Lifan Technology(Group)Co.Ltd Carry?

You can click the graphic below for the historical numbers, but it shows that Lifan Technology(Group)Co.Ltd had CN¥2.01b of debt in September 2024, down from CN¥2.80b, one year before. However, its balance sheet shows it holds CN¥3.24b in cash, so it actually has CN¥1.23b net cash.

A Look At Lifan Technology(Group)Co.Ltd's Liabilities

We can see from the most recent balance sheet that Lifan Technology(Group)Co.Ltd had liabilities of CN¥7.12b falling due within a year, and liabilities of CN¥1.97b due beyond that. Offsetting this, it had CN¥3.24b in cash and CN¥1.60b in receivables that were due within 12 months. So it has liabilities totalling CN¥4.26b more than its cash and near-term receivables, combined.

Of course, Lifan Technology(Group)Co.Ltd has a market capitalization of CN¥31.8b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Lifan Technology(Group)Co.Ltd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Lifan Technology(Group)Co.Ltd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Lifan Technology(Group)Co.Ltd had a loss before interest and tax, and actually shrunk its revenue by 5.5%, to CN¥7.3b. We would much prefer see growth.

So How Risky Is Lifan Technology(Group)Co.Ltd?

While Lifan Technology(Group)Co.Ltd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥2.4m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Lifan Technology(Group)Co.Ltd that you should be aware of.

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.