Health Check: How Prudently Does Skyverse Technology (SHSE:688361) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that Skyverse Technology Co., Ltd. (SHSE:688361) 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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Skyverse Technology

What Is Skyverse Technology's Net Debt?

As you can see below, Skyverse Technology had CN¥103.0m of debt at June 2024, down from CN¥124.1m a year prior. But on the other hand it also has CN¥1.03b in cash, leading to a CN¥928.4m net cash position.

A Look At Skyverse Technology's Liabilities

According to the last reported balance sheet, Skyverse Technology had liabilities of CN¥1.23b due within 12 months, and liabilities of CN¥250.6m due beyond 12 months. On the other hand, it had cash of CN¥1.03b and CN¥267.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥182.8m.

Having regard to Skyverse Technology's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥21.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Skyverse Technology 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 Skyverse Technology'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.

In the last year Skyverse Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to CN¥989m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Skyverse Technology?

While Skyverse Technology lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥26m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. One positive is that Skyverse Technology is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. 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. For example Skyverse Technology has 3 warning signs (and 1 which is concerning) we think 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.