AisinoLtd (SHSE:600271) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Aisino Co.Ltd. (SHSE:600271) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for AisinoLtd

What Is AisinoLtd's Debt?

As you can see below, AisinoLtd had CN¥400.6m of debt at September 2024, down from CN¥476.6m a year prior. But it also has CN¥6.74b in cash to offset that, meaning it has CN¥6.34b net cash.

How Healthy Is AisinoLtd's Balance Sheet?

We can see from the most recent balance sheet that AisinoLtd had liabilities of CN¥3.83b falling due within a year, and liabilities of CN¥272.0m due beyond that. On the other hand, it had cash of CN¥6.74b and CN¥3.04b worth of receivables due within a year. So it can boast CN¥5.68b more liquid assets than total liabilities.

This surplus liquidity suggests that AisinoLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that AisinoLtd has more cash than debt is arguably a good indication that it can manage its debt safely. 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 AisinoLtd 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, AisinoLtd made a loss at the EBIT level, and saw its revenue drop to CN¥8.3b, which is a fall of 48%. That makes us nervous, to say the least.

So How Risky Is AisinoLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year AisinoLtd 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¥5.1m and booked a CN¥278m accounting loss. With only CN¥6.34b on the balance sheet, it would appear that its going to need to raise capital again soon. 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 we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how AisinoLtd's profit, revenue, and operating cashflow have changed over the last few years.

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.