Is Guangzhou Anyka Microelectronics (SHSE:688620) A Risky Investment?

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. Importantly, Guangzhou Anyka Microelectronics Co., Ltd. (SHSE:688620) does carry debt. But the real question is whether this debt is making the company risky.

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Guangzhou Anyka Microelectronics

What Is Guangzhou Anyka Microelectronics's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Guangzhou Anyka Microelectronics had debt of CN¥130.1m, up from CN¥42.3m in one year. But it also has CN¥211.1m in cash to offset that, meaning it has CN¥81.0m net cash.

How Strong Is Guangzhou Anyka Microelectronics' Balance Sheet?

We can see from the most recent balance sheet that Guangzhou Anyka Microelectronics had liabilities of CN¥226.8m falling due within a year, and liabilities of CN¥9.66m due beyond that. Offsetting these obligations, it had cash of CN¥211.1m as well as receivables valued at CN¥172.1m due within 12 months. So it can boast CN¥146.7m more liquid assets than total liabilities.

This surplus suggests that Guangzhou Anyka Microelectronics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Guangzhou Anyka Microelectronics 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 Guangzhou Anyka Microelectronics 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.

Over 12 months, Guangzhou Anyka Microelectronics reported revenue of CN¥573m, which is a gain of 7.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Guangzhou Anyka Microelectronics?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Guangzhou Anyka Microelectronics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥53m of cash and made a loss of CN¥9.3m. Given it only has net cash of CN¥81.0m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 instance, we've identified 1 warning sign for Guangzhou Anyka Microelectronics that you should be aware of.

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.