Suzhou Everbright Photonics (SHSE:688048) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Suzhou Everbright Photonics Co., Ltd. (SHSE:688048) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

View our latest analysis for Suzhou Everbright Photonics

What Is Suzhou Everbright Photonics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Suzhou Everbright Photonics had CN¥98.3m of debt, an increase on CN¥37.1m, over one year. But on the other hand it also has CN¥1.33b in cash, leading to a CN¥1.23b net cash position.

A Look At Suzhou Everbright Photonics' Liabilities

We can see from the most recent balance sheet that Suzhou Everbright Photonics had liabilities of CN¥313.3m falling due within a year, and liabilities of CN¥46.6m due beyond that. Offsetting this, it had CN¥1.33b in cash and CN¥191.4m in receivables that were due within 12 months. So it actually has CN¥1.16b 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. Given it has easily adequate short term liquidity, we don't think it will have any issues 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! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Suzhou Everbright Photonics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Suzhou Everbright Photonics had a loss before interest and tax, and actually shrunk its revenue by 4.8%, to CN¥274m. That's not what we would hope to see.

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¥160m and booked a CN¥133m accounting loss. With only CN¥1.23b on the balance sheet, it would appear that its going to need to raise capital again 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. 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 Suzhou Everbright Photonics is showing 1 warning sign in our investment analysis , you should know about...

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.

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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.