Is Shanghai Golden Bridge InfoTechLtd (SHSE:603918) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Shanghai Golden Bridge InfoTech Co.,Ltd (SHSE:603918) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. 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.

See our latest analysis for Shanghai Golden Bridge InfoTechLtd

What Is Shanghai Golden Bridge InfoTechLtd's Debt?

As you can see below, at the end of September 2024, Shanghai Golden Bridge InfoTechLtd had CN¥13.0m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has CN¥615.6m in cash, leading to a CN¥602.6m net cash position.

How Strong Is Shanghai Golden Bridge InfoTechLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shanghai Golden Bridge InfoTechLtd had liabilities of CN¥584.8m due within 12 months and liabilities of CN¥4.80m due beyond that. On the other hand, it had cash of CN¥615.6m and CN¥380.8m worth of receivables due within a year. So it actually has CN¥406.8m more liquid assets than total liabilities.

This surplus suggests that Shanghai Golden Bridge InfoTechLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Shanghai Golden Bridge InfoTechLtd 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 Shanghai Golden Bridge InfoTechLtd'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.

In the last year Shanghai Golden Bridge InfoTechLtd had a loss before interest and tax, and actually shrunk its revenue by 30%, to CN¥688m. To be frank that doesn't bode well.

So How Risky Is Shanghai Golden Bridge InfoTechLtd?

While Shanghai Golden Bridge InfoTechLtd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥31m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. 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. However, not all investment risk resides within the balance sheet - far from it. For example - Shanghai Golden Bridge InfoTechLtd has 2 warning signs 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.

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.