Beijing Teamsun TechnologyLtd (SHSE:600410) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Beijing Teamsun Technology Co.,Ltd. (SHSE:600410) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Beijing Teamsun TechnologyLtd

How Much Debt Does Beijing Teamsun TechnologyLtd Carry?

The chart below, which you can click on for greater detail, shows that Beijing Teamsun TechnologyLtd had CN¥1.25b in debt in September 2024; about the same as the year before. But it also has CN¥1.75b in cash to offset that, meaning it has CN¥496.3m net cash.

How Strong Is Beijing Teamsun TechnologyLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Beijing Teamsun TechnologyLtd had liabilities of CN¥3.40b due within 12 months and liabilities of CN¥286.9m due beyond that. Offsetting this, it had CN¥1.75b in cash and CN¥1.09b in receivables that were due within 12 months. So it has liabilities totalling CN¥840.7m more than its cash and near-term receivables, combined.

Given Beijing Teamsun TechnologyLtd has a market capitalization of CN¥11.8b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Beijing Teamsun TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Beijing Teamsun TechnologyLtd'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.

Over 12 months, Beijing Teamsun TechnologyLtd made a loss at the EBIT level, and saw its revenue drop to CN¥4.3b, which is a fall of 2.9%. We would much prefer see growth.

So How Risky Is Beijing Teamsun TechnologyLtd?

Although Beijing Teamsun TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥777m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 instance, we've identified 2 warning signs for Beijing Teamsun TechnologyLtd that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.