Is National Silicon Industry GroupLtd (SHSE:688126) Using Too Much Debt?

Warren Buffett famously said, '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. As with many other companies National Silicon Industry Group Co.,Ltd. (SHSE:688126) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for National Silicon Industry GroupLtd

How Much Debt Does National Silicon Industry GroupLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 National Silicon Industry GroupLtd had CN¥6.02b of debt, an increase on CN¥3.16b, over one year. But on the other hand it also has CN¥6.31b in cash, leading to a CN¥288.5m net cash position.

How Healthy Is National Silicon Industry GroupLtd's Balance Sheet?

We can see from the most recent balance sheet that National Silicon Industry GroupLtd had liabilities of CN¥3.96b falling due within a year, and liabilities of CN¥5.59b due beyond that. On the other hand, it had cash of CN¥6.31b and CN¥1.07b worth of receivables due within a year. So it has liabilities totalling CN¥2.17b more than its cash and near-term receivables, combined.

Given National Silicon Industry GroupLtd has a market capitalization of CN¥49.4b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, National Silicon Industry GroupLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine National Silicon Industry GroupLtd's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, National Silicon Industry GroupLtd made a loss at the EBIT level, and saw its revenue drop to CN¥3.3b, which is a fall of 3.4%. We would much prefer see growth.

So How Risky Is National Silicon Industry GroupLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year National Silicon Industry GroupLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥4.8b of cash and made a loss of CN¥562m. Given it only has net cash of CN¥288.5m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. For riskier companies like National Silicon Industry GroupLtd 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.

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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.