Is Guangzhou Anyka Microelectronics (SHSE:688620) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Guangzhou Anyka Microelectronics Co., Ltd. (SHSE:688620) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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

How Much Debt Does Guangzhou Anyka Microelectronics Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Guangzhou Anyka Microelectronics had debt of CN¥121.1m, up from CN¥90.7m in one year. However, it does have CN¥317.7m in cash offsetting this, leading to net cash of CN¥196.6m.

How Strong Is Guangzhou Anyka Microelectronics' Balance Sheet?

According to the last reported balance sheet, Guangzhou Anyka Microelectronics had liabilities of CN¥231.4m due within 12 months, and liabilities of CN¥3.56m due beyond 12 months. Offsetting these obligations, it had cash of CN¥317.7m as well as receivables valued at CN¥148.1m due within 12 months. So it actually has CN¥230.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Guangzhou Anyka Microelectronics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Guangzhou Anyka Microelectronics boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Guangzhou Anyka Microelectronics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Guangzhou Anyka Microelectronics wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to CN¥576m. 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?

Although Guangzhou Anyka Microelectronics had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥7.0m. 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. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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 be aware of the 2 warning signs we've spotted with Guangzhou Anyka Microelectronics .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.