Does China SpacesatLtd (SHSE:600118) 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.' 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, China Spacesat Co.,Ltd. (SHSE:600118) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

View our latest analysis for China SpacesatLtd

What Is China SpacesatLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 China SpacesatLtd had debt of CN¥326.9m, up from CN¥187.4m in one year. But on the other hand it also has CN¥1.53b in cash, leading to a CN¥1.20b net cash position.

How Strong Is China SpacesatLtd's Balance Sheet?

According to the last reported balance sheet, China SpacesatLtd had liabilities of CN¥5.01b due within 12 months, and liabilities of CN¥432.3m due beyond 12 months. Offsetting these obligations, it had cash of CN¥1.53b as well as receivables valued at CN¥5.33b due within 12 months. So it can boast CN¥1.42b more liquid assets than total liabilities.

This surplus suggests that China SpacesatLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that China SpacesatLtd has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is China SpacesatLtd'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.

Over 12 months, China SpacesatLtd made a loss at the EBIT level, and saw its revenue drop to CN¥4.9b, which is a fall of 26%. That makes us nervous, to say the least.

So How Risky Is China SpacesatLtd?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that China SpacesatLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥1.2b of cash and made a loss of CN¥23m. With only CN¥1.20b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that China SpacesatLtd is showing 1 warning sign in our investment analysis , you should know about...

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.