Does MCC Meili Cloud Computing Industry Investment (SZSE:000815) Have A Healthy Balance Sheet?

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 MCC Meili Cloud Computing Industry Investment Co., Ltd (SZSE:000815) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for MCC Meili Cloud Computing Industry Investment

What Is MCC Meili Cloud Computing Industry Investment's Debt?

As you can see below, MCC Meili Cloud Computing Industry Investment had CN¥321.0m of debt at December 2023, down from CN¥404.1m a year prior. However, it does have CN¥263.0m in cash offsetting this, leading to net debt of about CN¥58.0m.

How Strong Is MCC Meili Cloud Computing Industry Investment's Balance Sheet?

According to the last reported balance sheet, MCC Meili Cloud Computing Industry Investment had liabilities of CN¥687.2m due within 12 months, and liabilities of CN¥204.3m due beyond 12 months. On the other hand, it had cash of CN¥263.0m and CN¥301.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥326.7m.

Given MCC Meili Cloud Computing Industry Investment has a market capitalization of CN¥5.77b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Carrying virtually no net debt, MCC Meili Cloud Computing Industry Investment has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is MCC Meili Cloud Computing Industry Investment'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.

In the last year MCC Meili Cloud Computing Industry Investment's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months MCC Meili Cloud Computing Industry Investment produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥9.2m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥115m of cash over the last year. So to be blunt we think it is risky. 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. Be aware that MCC Meili Cloud Computing Industry Investment is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.