Does RoboTechnik Intelligent Technology (SZSE:300757) Have A Healthy Balance Sheet?

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, RoboTechnik Intelligent Technology Co., LTD (SZSE:300757) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for RoboTechnik Intelligent Technology

What Is RoboTechnik Intelligent Technology's Debt?

As you can see below, at the end of March 2024, RoboTechnik Intelligent Technology had CN¥842.0m of debt, up from CN¥615.6m a year ago. Click the image for more detail. However, it also had CN¥270.9m in cash, and so its net debt is CN¥571.1m.

How Healthy Is RoboTechnik Intelligent Technology's Balance Sheet?

We can see from the most recent balance sheet that RoboTechnik Intelligent Technology had liabilities of CN¥1.71b falling due within a year, and liabilities of CN¥20.0m due beyond that. On the other hand, it had cash of CN¥270.9m and CN¥974.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥481.8m.

Since publicly traded RoboTechnik Intelligent Technology shares are worth a total of CN¥12.8b, 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.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

With net debt to EBITDA of 4.9 RoboTechnik Intelligent Technology has a fairly noticeable amount of debt. On the plus side, its EBIT was 7.7 times its interest expense, and its net debt to EBITDA, was quite high, at 4.9. Notably, RoboTechnik Intelligent Technology's EBIT launched higher than Elon Musk, gaining a whopping 150% on last year. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since RoboTechnik Intelligent Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Happily for any shareholders, RoboTechnik Intelligent Technology actually produced more free cash flow than EBIT over the last two years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our View

Happily, RoboTechnik Intelligent Technology's impressive conversion of EBIT to free cash flow implies it has the upper hand on its debt. But we must concede we find its net debt to EBITDA has the opposite effect. Zooming out, RoboTechnik Intelligent Technology seems to use debt quite reasonably; and that gets the nod from us. While debt does bring risk, when used wisely it can also bring a higher return on equity. 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. To that end, you should be aware of the 3 warning signs we've spotted with RoboTechnik Intelligent Technology .

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.

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