We Think QITIAN Technology Group (SZSE:300061) Has A Fair Chunk Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that QITIAN Technology Group Co., Ltd. (SZSE:300061) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for QITIAN Technology Group

What Is QITIAN Technology Group's Debt?

As you can see below, QITIAN Technology Group had CN¥625.3m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has CN¥171.8m in cash leading to net debt of about CN¥453.4m.

How Healthy Is QITIAN Technology Group's Balance Sheet?

According to the last reported balance sheet, QITIAN Technology Group had liabilities of CN¥790.6m due within 12 months, and liabilities of CN¥9.74m due beyond 12 months. Offsetting these obligations, it had cash of CN¥171.8m as well as receivables valued at CN¥702.4m due within 12 months. So it can boast CN¥73.9m more liquid assets than total liabilities.

This state of affairs indicates that QITIAN Technology Group'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¥9.36b company is struggling for cash, we still think it's worth monitoring its balance sheet. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since QITIAN Technology Group will need earnings to service that debt. 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 QITIAN Technology Group had a loss before interest and tax, and actually shrunk its revenue by 24%, to CN¥793m. To be frank that doesn't bode well.

Caveat Emptor

Not only did QITIAN Technology Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at CN¥42m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for QITIAN Technology Group 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.