Does GrandiT (SHSE:688549) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 GrandiT Co., Ltd. (SHSE:688549) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for GrandiT

What Is GrandiT's Debt?

You can click the graphic below for the historical numbers, but it shows that GrandiT had CN¥183.5m of debt in March 2024, down from CN¥276.9m, one year before. But it also has CN¥1.73b in cash to offset that, meaning it has CN¥1.54b net cash.

A Look At GrandiT's Liabilities

According to the last reported balance sheet, GrandiT had liabilities of CN¥659.3m due within 12 months, and liabilities of CN¥179.4m due beyond 12 months. On the other hand, it had cash of CN¥1.73b and CN¥343.9m worth of receivables due within a year. So it can boast CN¥1.23b more liquid assets than total liabilities.

This surplus suggests that GrandiT has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, GrandiT boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is GrandiT's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, GrandiT reported revenue of CN¥923m, which is a gain of 12%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is GrandiT?

Although GrandiT had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥23m. 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. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for GrandiT you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com