Is 360 Security Technology (SHSE:601360) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that 360 Security Technology Inc. (SHSE:601360) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for 360 Security Technology

What Is 360 Security Technology's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 360 Security Technology had debt of CN¥1.76b, up from CN¥1.20b in one year. But on the other hand it also has CN¥24.6b in cash, leading to a CN¥22.9b net cash position.

How Healthy Is 360 Security Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that 360 Security Technology had liabilities of CN¥6.25b due within 12 months and liabilities of CN¥1.99b due beyond that. Offsetting these obligations, it had cash of CN¥24.6b as well as receivables valued at CN¥1.46b due within 12 months. So it can boast CN¥17.9b more liquid assets than total liabilities.

This surplus suggests that 360 Security Technology is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, 360 Security Technology 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 360 Security Technology'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 360 Security Technology had a loss before interest and tax, and actually shrunk its revenue by 15%, to CN¥7.9b. That's not what we would hope to see.

So How Risky Is 360 Security Technology?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year 360 Security Technology had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥283m and booked a CN¥703m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥22.9b. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - 360 Security Technology has 1 warning sign we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.