Does Piesat Information Technology (SHSE:688066) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Piesat Information Technology Co., Ltd. (SHSE:688066) does carry debt. But should shareholders be worried about its use of debt?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Piesat Information Technology

What Is Piesat Information Technology's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Piesat Information Technology had CN¥2.35b of debt, an increase on CN¥1.95b, over one year. However, it does have CN¥599.2m in cash offsetting this, leading to net debt of about CN¥1.76b.

How Strong Is Piesat Information Technology's Balance Sheet?

The latest balance sheet data shows that Piesat Information Technology had liabilities of CN¥2.35b due within a year, and liabilities of CN¥1.26b falling due after that. On the other hand, it had cash of CN¥599.2m and CN¥2.71b worth of receivables due within a year. So it has liabilities totalling CN¥299.6m more than its cash and near-term receivables, combined.

Since publicly traded Piesat Information Technology shares are worth a total of CN¥6.58b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Piesat Information 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.

Over 12 months, Piesat Information Technology made a loss at the EBIT level, and saw its revenue drop to CN¥1.8b, which is a fall of 25%. To be frank that doesn't bode well.

Caveat Emptor

While Piesat Information Technology's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost CN¥413m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.1b in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Piesat Information Technology (1 is significant) you should be aware of.

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.

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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.