Cosonic Intelligent Technologies (SZSE:300793) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Cosonic Intelligent Technologies Co., Ltd. (SZSE:300793) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Cosonic Intelligent Technologies

How Much Debt Does Cosonic Intelligent Technologies Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Cosonic Intelligent Technologies had debt of CN¥1.28b, up from CN¥139.3m in one year. But it also has CN¥2.03b in cash to offset that, meaning it has CN¥744.6m net cash.

How Healthy Is Cosonic Intelligent Technologies' Balance Sheet?

The latest balance sheet data shows that Cosonic Intelligent Technologies had liabilities of CN¥1.26b due within a year, and liabilities of CN¥993.7m falling due after that. Offsetting these obligations, it had cash of CN¥2.03b as well as receivables valued at CN¥760.8m due within 12 months. So it can boast CN¥536.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Cosonic Intelligent Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Cosonic Intelligent Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Cosonic Intelligent Technologies'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 Cosonic Intelligent Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to CN¥2.5b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Cosonic Intelligent Technologies?

Although Cosonic Intelligent Technologies had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥50m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with Cosonic Intelligent Technologies , and understanding them should be part of your investment process.

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.