Is Beijing LeiKe Defense Technology (SZSE:002413) A Risky Investment?

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. As with many other companies Beijing LeiKe Defense Technology Co., Ltd. (SZSE:002413) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Beijing LeiKe Defense Technology

How Much Debt Does Beijing LeiKe Defense Technology Carry?

The image below, which you can click on for greater detail, shows that Beijing LeiKe Defense Technology had debt of CN¥138.0m at the end of March 2024, a reduction from CN¥425.2m over a year. But on the other hand it also has CN¥442.6m in cash, leading to a CN¥304.7m net cash position.

How Healthy Is Beijing LeiKe Defense Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Beijing LeiKe Defense Technology had liabilities of CN¥1.07b due within 12 months and liabilities of CN¥153.5m due beyond that. On the other hand, it had cash of CN¥442.6m and CN¥1.34b worth of receivables due within a year. So it can boast CN¥565.1m more liquid assets than total liabilities.

This surplus suggests that Beijing LeiKe Defense Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Beijing LeiKe Defense 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 ultimately the future profitability of the business will decide if Beijing LeiKe Defense Technology can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Beijing LeiKe Defense Technology had a loss before interest and tax, and actually shrunk its revenue by 6.0%, to CN¥1.3b. We would much prefer see growth.

So How Risky Is Beijing LeiKe Defense Technology?

Although Beijing LeiKe Defense Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥164m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Be aware that Beijing LeiKe Defense Technology 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.