We Think Goodwill E-Health Info (SHSE:688246) Can Stay On Top Of Its Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Goodwill E-Health Info Co., Ltd. (SHSE:688246) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Goodwill E-Health Info

How Much Debt Does Goodwill E-Health Info Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Goodwill E-Health Info had debt of CN¥287.2m, up from CN¥18.5m in one year. But on the other hand it also has CN¥407.8m in cash, leading to a CN¥120.6m net cash position.

A Look At Goodwill E-Health Info's Liabilities

We can see from the most recent balance sheet that Goodwill E-Health Info had liabilities of CN¥845.1m falling due within a year, and liabilities of CN¥39.6m due beyond that. Offsetting this, it had CN¥407.8m in cash and CN¥886.8m in receivables that were due within 12 months. So it can boast CN¥410.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Goodwill E-Health Info could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Goodwill E-Health Info boasts net cash, so it's fair to say it does not have a heavy debt load!

It was also good to see that despite losing money on the EBIT line last year, Goodwill E-Health Info turned things around in the last 12 months, delivering and EBIT of CN¥17m. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Goodwill E-Health Info 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Goodwill E-Health Info has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, Goodwill E-Health Info burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Goodwill E-Health Info has CN¥120.6m in net cash and a decent-looking balance sheet. So we are not troubled with Goodwill E-Health Info's debt use. 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. For example, we've discovered 2 warning signs for Goodwill E-Health Info that you should be aware of before investing here.

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.