Is Zhuhai Aerospace Microchips Science & Technology (SZSE:300053) Using Debt In A Risky Way?

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 note that Zhuhai Aerospace Microchips Science & Technology Co., Ltd. (SZSE:300053) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Zhuhai Aerospace Microchips Science & Technology

What Is Zhuhai Aerospace Microchips Science & Technology's Debt?

As you can see below, at the end of March 2024, Zhuhai Aerospace Microchips Science & Technology had CN¥199.4m of debt, up from CN¥158.5m a year ago. Click the image for more detail. But it also has CN¥217.7m in cash to offset that, meaning it has CN¥18.4m net cash.

How Healthy Is Zhuhai Aerospace Microchips Science & Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Zhuhai Aerospace Microchips Science & Technology had liabilities of CN¥599.1m due within 12 months and liabilities of CN¥70.2m due beyond that. On the other hand, it had cash of CN¥217.7m and CN¥714.3m worth of receivables due within a year. So it can boast CN¥262.7m more liquid assets than total liabilities.

This surplus suggests that Zhuhai Aerospace Microchips Science & Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Zhuhai Aerospace Microchips Science & Technology boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Zhuhai Aerospace Microchips Science & Technology's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year Zhuhai Aerospace Microchips Science & Technology had a loss before interest and tax, and actually shrunk its revenue by 24%, to CN¥310m. That makes us nervous, to say the least.

So How Risky Is Zhuhai Aerospace Microchips Science & Technology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Zhuhai Aerospace Microchips Science & Technology had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥106m and booked a CN¥445m accounting loss. But at least it has CN¥18.4m on the balance sheet to spend on growth, near-term. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Zhuhai Aerospace Microchips Science & Technology you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com