Saimo TechnologyLtd (SZSE:300466) Is Making Moderate Use Of Debt

Warren Buffett famously said, '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. We can see that Saimo Technology Co.,Ltd. (SZSE:300466) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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.

Check out our latest analysis for Saimo TechnologyLtd

How Much Debt Does Saimo TechnologyLtd Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Saimo TechnologyLtd had debt of CN¥221.0m, up from CN¥180.9m in one year. However, it also had CN¥77.5m in cash, and so its net debt is CN¥143.4m.

How Healthy Is Saimo TechnologyLtd's Balance Sheet?

We can see from the most recent balance sheet that Saimo TechnologyLtd had liabilities of CN¥562.3m falling due within a year, and liabilities of CN¥26.7m due beyond that. On the other hand, it had cash of CN¥77.5m and CN¥563.4m worth of receivables due within a year. So it can boast CN¥51.9m more liquid assets than total liabilities.

This state of affairs indicates that Saimo TechnologyLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥4.54b company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But it is Saimo 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.

In the last year Saimo TechnologyLtd had a loss before interest and tax, and actually shrunk its revenue by 6.3%, to CN¥700m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Saimo TechnologyLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CN¥59m at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Saimo TechnologyLtd 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.