Is Shenzhen Intellifusion Technologies (SHSE:688343) Using Debt In A Risky Way?

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. As with many other companies Shenzhen Intellifusion Technologies Co., Ltd. (SHSE:688343) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Shenzhen Intellifusion Technologies

How Much Debt Does Shenzhen Intellifusion Technologies Carry?

As you can see below, at the end of September 2024, Shenzhen Intellifusion Technologies had CN¥109.6m of debt, up from none a year ago. Click the image for more detail. But it also has CN¥1.56b in cash to offset that, meaning it has CN¥1.45b net cash.

A Look At Shenzhen Intellifusion Technologies' Liabilities

We can see from the most recent balance sheet that Shenzhen Intellifusion Technologies had liabilities of CN¥712.6m falling due within a year, and liabilities of CN¥69.5m due beyond that. Offsetting this, it had CN¥1.56b in cash and CN¥617.8m in receivables that were due within 12 months. So it can boast CN¥1.39b more liquid assets than total liabilities.

This surplus suggests that Shenzhen Intellifusion Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Shenzhen Intellifusion Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Shenzhen Intellifusion Technologies can strengthen its balance sheet over time. 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¥762m, which is a gain of 47%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Shenzhen Intellifusion Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Shenzhen Intellifusion Technologies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥2.2b of cash and made a loss of CN¥510m. Given it only has net cash of CN¥1.45b, the company may need to raise more capital if it doesn't reach break-even soon. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Shenzhen Intellifusion Technologies you should be aware of, and 2 of them make us uncomfortable.

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.