Does ACM Research (Shanghai) (SHSE:688082) Have A Healthy Balance Sheet?

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 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. As with many other companies ACM Research (Shanghai), Inc. (SHSE:688082) makes use of debt. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for ACM Research (Shanghai)

What Is ACM Research (Shanghai)'s Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 ACM Research (Shanghai) had CN¥933.3m of debt, an increase on CN¥528.7m, over one year. But on the other hand it also has CN¥2.37b in cash, leading to a CN¥1.43b net cash position.

How Strong Is ACM Research (Shanghai)'s Balance Sheet?

According to the last reported balance sheet, ACM Research (Shanghai) had liabilities of CN¥3.65b due within 12 months, and liabilities of CN¥544.0m due beyond 12 months. Offsetting this, it had CN¥2.37b in cash and CN¥1.63b in receivables that were due within 12 months. So its liabilities total CN¥196.7m more than the combination of its cash and short-term receivables.

Having regard to ACM Research (Shanghai)'s size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥35.7b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, ACM Research (Shanghai) also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also good is that ACM Research (Shanghai) grew its EBIT at 14% over the last year, further increasing its ability to manage debt. 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 ACM Research (Shanghai)'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While ACM Research (Shanghai) has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, ACM Research (Shanghai) burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

We could understand if investors are concerned about ACM Research (Shanghai)'s liabilities, but we can be reassured by the fact it has has net cash of CN¥1.43b. And it also grew its EBIT by 14% over the last year. So we don't have any problem with ACM Research (Shanghai)'s use of debt. 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 learn about the 2 warning signs we've spotted with ACM Research (Shanghai) (including 1 which is a bit unpleasant) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.