Is Xgimi TechnologyLtd (SHSE:688696) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Xgimi Technology Co.,Ltd. (SHSE:688696) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Xgimi TechnologyLtd

How Much Debt Does Xgimi TechnologyLtd Carry?

As you can see below, at the end of June 2024, Xgimi TechnologyLtd had CN¥604.7m of debt, up from CN¥581.0m a year ago. Click the image for more detail. But it also has CN¥2.64b in cash to offset that, meaning it has CN¥2.03b net cash.

How Healthy Is Xgimi TechnologyLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Xgimi TechnologyLtd had liabilities of CN¥1.26b due within 12 months and liabilities of CN¥1.13b due beyond that. On the other hand, it had cash of CN¥2.64b and CN¥150.0m worth of receivables due within a year. So it can boast CN¥392.1m more liquid assets than total liabilities.

This surplus suggests that Xgimi TechnologyLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Xgimi TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Xgimi TechnologyLtd 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.

In the last year Xgimi TechnologyLtd had a loss before interest and tax, and actually shrunk its revenue by 7.4%, to CN¥3.5b. That's not what we would hope to see.

So How Risky Is Xgimi TechnologyLtd?

While Xgimi TechnologyLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥32m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Xgimi TechnologyLtd you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.