Is Fujian Furi ElectronicsLtd (SHSE:600203) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Fujian Furi Electronics Co.,Ltd (SHSE:600203) makes use of debt. But the real question is whether this debt is making the company risky.

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Fujian Furi ElectronicsLtd

How Much Debt Does Fujian Furi ElectronicsLtd Carry?

As you can see below, at the end of September 2024, Fujian Furi ElectronicsLtd had CN¥3.17b of debt, up from CN¥2.78b a year ago. Click the image for more detail. However, because it has a cash reserve of CN¥1.52b, its net debt is less, at about CN¥1.65b.

How Strong Is Fujian Furi ElectronicsLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Fujian Furi ElectronicsLtd had liabilities of CN¥5.54b due within 12 months and liabilities of CN¥310.6m due beyond that. Offsetting these obligations, it had cash of CN¥1.52b as well as receivables valued at CN¥1.99b due within 12 months. So its liabilities total CN¥2.33b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Fujian Furi ElectronicsLtd is worth CN¥7.00b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Fujian Furi ElectronicsLtd will need earnings to service that debt. 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 Fujian Furi ElectronicsLtd had a loss before interest and tax, and actually shrunk its revenue by 7.6%, to CN¥11b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Fujian Furi ElectronicsLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥170m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥31m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. To that end, you should be aware of the 2 warning signs we've spotted with Fujian Furi ElectronicsLtd .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.