Is Shenzhen Intellifusion Technologies (SHSE:688343) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Shenzhen Intellifusion Technologies Co., Ltd. (SHSE:688343) does carry debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Shenzhen Intellifusion Technologies

How Much Debt Does Shenzhen Intellifusion Technologies Carry?

As you can see below, at the end of June 2024, Shenzhen Intellifusion Technologies had CN¥68.9m of debt, up from none a year ago. Click the image for more detail. However, it does have CN¥2.36b in cash offsetting this, leading to net cash of CN¥2.29b.

How Strong Is Shenzhen Intellifusion Technologies' Balance Sheet?

According to the last reported balance sheet, Shenzhen Intellifusion Technologies had liabilities of CN¥559.9m due within 12 months, and liabilities of CN¥47.1m due beyond 12 months. Offsetting these obligations, it had cash of CN¥2.36b as well as receivables valued at CN¥688.9m due within 12 months. So it can boast CN¥2.44b more liquid assets than total liabilities.

This surplus suggests that Shenzhen Intellifusion Technologies 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, Shenzhen Intellifusion Technologies 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 it is future earnings, more than anything, that will determine Shenzhen Intellifusion Technologies's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Shenzhen Intellifusion Technologies reported revenue of CN¥649m, which is a gain of 28%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Shenzhen Intellifusion Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Shenzhen Intellifusion Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥1.6b and booked a CN¥482m accounting loss. But at least it has CN¥2.29b on the balance sheet to spend on growth, near-term. Shenzhen Intellifusion Technologies's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for Shenzhen Intellifusion Technologies you should be aware of, and 1 of them doesn't sit too well with us.

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.

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.