Does Suzhou Everbright Photonics (SHSE:688048) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Suzhou Everbright Photonics Co., Ltd. (SHSE:688048) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Suzhou Everbright Photonics

How Much Debt Does Suzhou Everbright Photonics Carry?

As you can see below, at the end of March 2024, Suzhou Everbright Photonics had CN¥94.6m of debt, up from none a year ago. Click the image for more detail. But it also has CN¥1.55b in cash to offset that, meaning it has CN¥1.45b net cash.

How Healthy Is Suzhou Everbright Photonics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Suzhou Everbright Photonics had liabilities of CN¥289.4m due within 12 months and liabilities of CN¥51.9m due beyond that. Offsetting these obligations, it had cash of CN¥1.55b as well as receivables valued at CN¥211.5m due within 12 months. So it can boast CN¥1.42b more liquid assets than total liabilities.

This surplus suggests that Suzhou Everbright Photonics is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Suzhou Everbright Photonics 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 ultimately the future profitability of the business will decide if Suzhou Everbright Photonics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Suzhou Everbright Photonics had a loss before interest and tax, and actually shrunk its revenue by 31%, to CN¥252m. To be frank that doesn't bode well.

So How Risky Is Suzhou Everbright Photonics?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Suzhou Everbright Photonics had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥473m and booked a CN¥113m accounting loss. Given it only has net cash of CN¥1.45b, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. For riskier companies like Suzhou Everbright Photonics I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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

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