Is CSG Smart Science&TechnologyLtd (SZSE:300222) Using Debt Sensibly?

Warren Buffett famously said, '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. Importantly, CSG Smart Science&Technology Co.,Ltd. (SZSE:300222) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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 CSG Smart Science&TechnologyLtd

What Is CSG Smart Science&TechnologyLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that CSG Smart Science&TechnologyLtd had CN¥515.8m of debt in March 2024, down from CN¥656.8m, one year before. But it also has CN¥731.6m in cash to offset that, meaning it has CN¥215.8m net cash.

How Strong Is CSG Smart Science&TechnologyLtd's Balance Sheet?

We can see from the most recent balance sheet that CSG Smart Science&TechnologyLtd had liabilities of CN¥2.62b falling due within a year, and liabilities of CN¥369.9m due beyond that. Offsetting this, it had CN¥731.6m in cash and CN¥1.81b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥441.5m.

Since publicly traded CSG Smart Science&TechnologyLtd shares are worth a total of CN¥4.91b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, CSG Smart Science&TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is CSG Smart Science&TechnologyLtd'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.

Over 12 months, CSG Smart Science&TechnologyLtd made a loss at the EBIT level, and saw its revenue drop to CN¥3.0b, which is a fall of 11%. We would much prefer see growth.

So How Risky Is CSG Smart Science&TechnologyLtd?

Although CSG Smart Science&TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥51m. 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. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how CSG Smart Science&TechnologyLtd's profit, revenue, and operating cashflow have changed over the last few years.

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.