We Think Aerospace Intelligent Manufacturing Technology (SZSE:300446) Can Manage Its Debt With Ease

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. As with many other companies Aerospace Intelligent Manufacturing Technology Co., Ltd. (SZSE:300446) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Aerospace Intelligent Manufacturing Technology

What Is Aerospace Intelligent Manufacturing Technology's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Aerospace Intelligent Manufacturing Technology had debt of CN¥260.5m, up from CN¥60.0m in one year. However, its balance sheet shows it holds CN¥2.45b in cash, so it actually has CN¥2.19b net cash.

How Strong Is Aerospace Intelligent Manufacturing Technology's Balance Sheet?

The latest balance sheet data shows that Aerospace Intelligent Manufacturing Technology had liabilities of CN¥3.09b due within a year, and liabilities of CN¥369.6m falling due after that. Offsetting these obligations, it had cash of CN¥2.45b as well as receivables valued at CN¥2.32b due within 12 months. So it actually has CN¥1.31b more liquid assets than total liabilities.

This surplus suggests that Aerospace Intelligent Manufacturing Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Aerospace Intelligent Manufacturing Technology has more cash than debt is arguably a good indication that it can manage its debt safely.

Fortunately, Aerospace Intelligent Manufacturing Technology grew its EBIT by 2.7% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Aerospace Intelligent Manufacturing Technology 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Aerospace Intelligent Manufacturing Technology may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last two years, Aerospace Intelligent Manufacturing Technology produced sturdy free cash flow equating to 65% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Aerospace Intelligent Manufacturing Technology has CN¥2.19b in net cash and a decent-looking balance sheet. So we don't think Aerospace Intelligent Manufacturing Technology's use of debt is risky. 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. To that end, you should learn about the 2 warning signs we've spotted with Aerospace Intelligent Manufacturing Technology (including 1 which makes us a bit uncomfortable) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.