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

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies 360 Security Technology Inc. (SHSE:601360) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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 360 Security Technology

What Is 360 Security Technology's Debt?

As you can see below, at the end of September 2024, 360 Security Technology had CN¥1.76b of debt, up from CN¥1.20b a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥24.6b in cash, so it actually has CN¥22.9b net cash.

How Strong Is 360 Security Technology's Balance Sheet?

We can see from the most recent balance sheet that 360 Security Technology had liabilities of CN¥6.25b falling due within a year, and liabilities of CN¥1.99b due beyond that. On the other hand, it had cash of CN¥24.6b and CN¥1.46b worth of receivables due within a year. So it can boast CN¥17.9b more liquid assets than total liabilities.

This excess liquidity suggests that 360 Security Technology is taking a careful approach to debt. 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! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if 360 Security Technology can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, 360 Security Technology made a loss at the EBIT level, and saw its revenue drop to CN¥7.9b, which is a fall of 15%. 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 we do note that 360 Security Technology had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥283m and booked a CN¥703m accounting loss. But the saving grace is the CN¥22.9b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that 360 Security Technology 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.