Would Siasun Robot&AutomationLtd (SZSE:300024) Be Better Off With Less 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Siasun Robot&Automation Co.,Ltd. (SZSE:300024) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 image below, which you can click on for greater detail, shows that at September 2023 Siasun Robot&AutomationLtd had debt of CN¥2.37b, up from CN¥2.17b in one year. However, because it has a cash reserve of CN¥1.92b, its net debt is less, at about CN¥457.4m.

How Healthy Is Siasun Robot&AutomationLtd's Balance Sheet?

The latest balance sheet data shows that Siasun Robot&AutomationLtd had liabilities of CN¥6.41b due within a year, and liabilities of CN¥1.55b falling due after that. Offsetting this, it had CN¥1.92b in cash and CN¥2.12b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥3.91b.

This deficit isn't so bad because Siasun Robot&AutomationLtd is worth CN¥17.6b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Siasun Robot&AutomationLtd 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.

Over 12 months, Siasun Robot&AutomationLtd reported revenue of CN¥4.2b, which is a gain of 25%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Siasun Robot&AutomationLtd still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥651m at the EBIT level. 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. Another cause for caution is that is bled CN¥302m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Siasun Robot&AutomationLtd (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.