Rock star Growth Puts BlueFocus Intelligent Communications Group (SZSE:300058) In A Position To Use Debt

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.' 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 BlueFocus Intelligent Communications Group Co., Ltd. (SZSE:300058) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for BlueFocus Intelligent Communications Group

What Is BlueFocus Intelligent Communications Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 BlueFocus Intelligent Communications Group had CN¥2.40b of debt, an increase on CN¥2.27b, over one year. However, its balance sheet shows it holds CN¥4.05b in cash, so it actually has CN¥1.64b net cash.

A Look At BlueFocus Intelligent Communications Group's Liabilities

We can see from the most recent balance sheet that BlueFocus Intelligent Communications Group had liabilities of CN¥12.5b falling due within a year, and liabilities of CN¥1.11b due beyond that. On the other hand, it had cash of CN¥4.05b and CN¥11.3b worth of receivables due within a year. So it actually has CN¥1.68b more liquid assets than total liabilities.

This surplus suggests that BlueFocus Intelligent Communications Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that BlueFocus Intelligent Communications Group has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine BlueFocus Intelligent Communications Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, BlueFocus Intelligent Communications Group reported revenue of CN¥59b, which is a gain of 52%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is BlueFocus Intelligent Communications Group?

While BlueFocus Intelligent Communications Group lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥50m. 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. We think its revenue growth of 52% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how BlueFocus Intelligent Communications Group's profit, revenue, and operating cashflow have changed over the last few years.

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.