Siasun Robot&AutomationLtd (SZSE:300024) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Siasun Robot&Automation Co.,Ltd. (SZSE:300024) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

Check out our latest analysis for Siasun Robot&AutomationLtd

What Is Siasun Robot&AutomationLtd's Net Debt?

The chart below, which you can click on for greater detail, shows that Siasun Robot&AutomationLtd had CN¥2.33b in debt in September 2024; about the same as the year before. However, it also had CN¥2.16b in cash, and so its net debt is CN¥174.6m.

A Look At Siasun Robot&AutomationLtd's Liabilities

The latest balance sheet data shows that Siasun Robot&AutomationLtd had liabilities of CN¥6.23b due within a year, and liabilities of CN¥1.08b falling due after that. On the other hand, it had cash of CN¥2.16b and CN¥2.06b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥3.09b.

Of course, Siasun Robot&AutomationLtd has a market capitalization of CN¥32.1b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Carrying virtually no net debt, Siasun Robot&AutomationLtd has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Siasun Robot&AutomationLtd can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Siasun Robot&AutomationLtd made a loss at the EBIT level, and saw its revenue drop to CN¥4.0b, which is a fall of 4.6%. We would much prefer see growth.

Caveat Emptor

Importantly, Siasun Robot&AutomationLtd had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CN¥150m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥111m of cash over the last year. So to be blunt we think it is 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 learn about the 3 warning signs we've spotted with Siasun Robot&AutomationLtd (including 1 which shouldn't be ignored) .

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.

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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.