Does Saurer Intelligent Technology (SHSE:600545) Have A Healthy Balance Sheet?

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.' 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. Importantly, Saurer Intelligent Technology Co. Ltd (SHSE:600545) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Saurer Intelligent Technology

What Is Saurer Intelligent Technology's Debt?

The image below, which you can click on for greater detail, shows that Saurer Intelligent Technology had debt of CN¥2.25b at the end of September 2024, a reduction from CN¥2.36b over a year. However, it does have CN¥435.0m in cash offsetting this, leading to net debt of about CN¥1.81b.

A Look At Saurer Intelligent Technology's Liabilities

According to the last reported balance sheet, Saurer Intelligent Technology had liabilities of CN¥4.31b due within 12 months, and liabilities of CN¥986.0m due beyond 12 months. Offsetting this, it had CN¥435.0m in cash and CN¥3.54b in receivables that were due within 12 months. So it has liabilities totalling CN¥1.32b more than its cash and near-term receivables, combined.

Saurer Intelligent Technology has a market capitalization of CN¥4.09b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Saurer Intelligent Technology'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 Saurer Intelligent Technology had a loss before interest and tax, and actually shrunk its revenue by 22%, to CN¥4.6b. That makes us nervous, to say the least.

Caveat Emptor

While Saurer Intelligent Technology's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost CN¥48m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of CN¥132m. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Saurer Intelligent Technology (2 are potentially serious!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.