BOE HC SemiTek (SZSE:300323) Is Making Moderate Use Of 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that BOE HC SemiTek Corporation (SZSE:300323) does use debt in its business. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 BOE HC SemiTek

What Is BOE HC SemiTek's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 BOE HC SemiTek had CN¥3.15b of debt, an increase on CN¥2.59b, over one year. However, because it has a cash reserve of CN¥1.16b, its net debt is less, at about CN¥2.00b.

A Look At BOE HC SemiTek's Liabilities

According to the last reported balance sheet, BOE HC SemiTek had liabilities of CN¥3.22b due within 12 months, and liabilities of CN¥1.66b due beyond 12 months. On the other hand, it had cash of CN¥1.16b and CN¥1.39b worth of receivables due within a year. So it has liabilities totalling CN¥2.33b more than its cash and near-term receivables, combined.

Of course, BOE HC SemiTek has a market capitalization of CN¥12.7b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since BOE HC SemiTek will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year BOE HC SemiTek wasn't profitable at an EBIT level, but managed to grow its revenue by 50%, to CN¥3.9b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though BOE HC SemiTek managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost CN¥930m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.8b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - BOE HC SemiTek has 3 warning signs we think you should be aware of.

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.