Does C*Core Technology (SHSE:688262) 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. We note that C*Core Technology Co., Ltd. (SHSE:688262) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for C*Core Technology

What Is C*Core Technology's Net Debt?

As you can see below, C*Core Technology had CN¥170.0m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds CN¥991.4m in cash, so it actually has CN¥821.4m net cash.

A Look At C*Core Technology's Liabilities

We can see from the most recent balance sheet that C*Core Technology had liabilities of CN¥529.8m falling due within a year, and liabilities of CN¥26.1m due beyond that. Offsetting these obligations, it had cash of CN¥991.4m as well as receivables valued at CN¥284.0m due within 12 months. So it can boast CN¥719.4m more liquid assets than total liabilities.

This surplus suggests that C*Core Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that C*Core Technology has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since C*Core Technology will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, C*Core Technology made a loss at the EBIT level, and saw its revenue drop to CN¥464m, which is a fall of 24%. To be frank that doesn't bode well.

So How Risky Is C*Core Technology?

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 C*Core Technology had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥601m of cash and made a loss of CN¥190m. Given it only has net cash of CN¥821.4m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with C*Core Technology , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

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