Health Check: How Prudently Does Beijing Teamsun TechnologyLtd (SHSE:600410) Use Debt?

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.' 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. Importantly, Beijing Teamsun Technology Co.,Ltd. (SHSE:600410) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Beijing Teamsun TechnologyLtd

How Much Debt Does Beijing Teamsun TechnologyLtd Carry?

As you can see below, at the end of March 2024, Beijing Teamsun TechnologyLtd had CN¥1.28b of debt, up from CN¥993.9m a year ago. Click the image for more detail. But on the other hand it also has CN¥1.90b in cash, leading to a CN¥614.6m net cash position.

How Healthy Is Beijing Teamsun TechnologyLtd's Balance Sheet?

We can see from the most recent balance sheet that Beijing Teamsun TechnologyLtd had liabilities of CN¥3.51b falling due within a year, and liabilities of CN¥330.1m due beyond that. Offsetting this, it had CN¥1.90b in cash and CN¥1.07b in receivables that were due within 12 months. So it has liabilities totalling CN¥873.9m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Beijing Teamsun TechnologyLtd has a market capitalization of CN¥4.24b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

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¥47m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. Be aware that Beijing Teamsun TechnologyLtd is showing 1 warning sign in our investment analysis , you should know about...

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.