Is Cybrid Technologies (SHSE:603212) Using Too Much 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.' 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 Cybrid Technologies Inc. (SHSE:603212) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Cybrid Technologies

How Much Debt Does Cybrid Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that Cybrid Technologies had CN¥854.6m of debt in September 2024, down from CN¥1.22b, one year before. However, it also had CN¥514.4m in cash, and so its net debt is CN¥340.2m.

How Strong Is Cybrid Technologies' Balance Sheet?

We can see from the most recent balance sheet that Cybrid Technologies had liabilities of CN¥1.59b falling due within a year, and liabilities of CN¥151.0m due beyond that. Offsetting these obligations, it had cash of CN¥514.4m as well as receivables valued at CN¥1.86b due within 12 months. So it actually has CN¥632.3m more liquid assets than total liabilities.

This surplus suggests that Cybrid Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Cybrid Technologies'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, Cybrid Technologies made a loss at the EBIT level, and saw its revenue drop to CN¥3.1b, which is a fall of 26%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Cybrid Technologies'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¥86m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But a profit would do more to inspire us to research the business more closely. So it seems too risky for our taste. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Cybrid Technologies .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.