Does AisinoLtd (SHSE:600271) Have A Healthy Balance Sheet?

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. We note that Aisino Co.Ltd. (SHSE:600271) does have debt on its balance sheet. 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. 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. 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¥429.4m of debt at June 2024, down from CN¥553.7m a year prior. However, it does have CN¥6.87b in cash offsetting this, leading to net cash of CN¥6.44b.

How Healthy Is AisinoLtd's Balance Sheet?

We can see from the most recent balance sheet that AisinoLtd had liabilities of CN¥3.89b falling due within a year, and liabilities of CN¥295.8m due beyond that. Offsetting this, it had CN¥6.87b in cash and CN¥3.09b in receivables that were due within 12 months. So it actually has CN¥5.77b more liquid assets than total liabilities.

This excess liquidity is a great indication that AisinoLtd's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, AisinoLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact AisinoLtd's saving grace is its low debt levels, because its EBIT has tanked 99% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. 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 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While AisinoLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, AisinoLtd recorded free cash flow of 45% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case AisinoLtd has CN¥6.44b in net cash and a decent-looking balance sheet. So we don't have any problem with AisinoLtd's use of debt. While AisinoLtd didn't make a statutory profit in the last year, its positive EBIT suggests that profitability might not be far away. Click here to see if its earnings are heading in the right direction, over the medium term.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.