Is Pci Technology GroupLtd (SHSE:600728) Using Debt In A Risky Way?

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, Pci Technology Group Co.,Ltd. (SHSE:600728) does carry debt. 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. If things get really bad, the lenders can take control of the business. 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 Pci Technology GroupLtd

What Is Pci Technology GroupLtd's Debt?

As you can see below, at the end of September 2023, Pci Technology GroupLtd had CN¥315.2m of debt, up from CN¥207.7m a year ago. Click the image for more detail. But it also has CN¥1.77b in cash to offset that, meaning it has CN¥1.46b net cash.

A Look At Pci Technology GroupLtd's Liabilities

The latest balance sheet data shows that Pci Technology GroupLtd had liabilities of CN¥5.58b due within a year, and liabilities of CN¥270.2m falling due after that. Offsetting these obligations, it had cash of CN¥1.77b as well as receivables valued at CN¥4.90b due within 12 months. So it can boast CN¥821.5m more liquid assets than total liabilities.

This surplus suggests that Pci Technology GroupLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Pci Technology GroupLtd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Pci Technology GroupLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Pci Technology GroupLtd had a loss before interest and tax, and actually shrunk its revenue by 10%, to CN¥5.4b. We would much prefer see growth.

So How Risky Is Pci Technology GroupLtd?

Although Pci Technology GroupLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥108m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Pci Technology GroupLtd is showing 1 warning sign in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.