We Think Pci Technology GroupLtd (SHSE:600728) Can Stay On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Pci Technology Group Co.,Ltd. (SHSE:600728) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Pci Technology GroupLtd

What Is Pci Technology GroupLtd's Debt?

As you can see below, Pci Technology GroupLtd had CN¥135.0m of debt at September 2024, down from CN¥315.2m a year prior. However, its balance sheet shows it holds CN¥813.4m in cash, so it actually has CN¥678.4m net cash.

A Look At Pci Technology GroupLtd's Liabilities

We can see from the most recent balance sheet that Pci Technology GroupLtd had liabilities of CN¥5.81b falling due within a year, and liabilities of CN¥232.1m due beyond that. On the other hand, it had cash of CN¥813.4m and CN¥6.11b worth of receivables due within a year. So it can boast CN¥876.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Pci Technology GroupLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Pci Technology GroupLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Pci Technology GroupLtd made a loss at the EBIT level, last year, it was also good to see that it generated CN¥138m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Pci Technology GroupLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Pci Technology GroupLtd 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. Over the last year, Pci Technology GroupLtd saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Pci Technology GroupLtd has net cash of CN¥678.4m, as well as more liquid assets than liabilities. So we don't have any problem with Pci Technology GroupLtd's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Pci Technology GroupLtd you should be aware of, and 1 of them makes us a bit uncomfortable.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.