Is Intsig Information (SHSE:688615) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Intsig Information Co., Ltd. (SHSE:688615) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Intsig Information's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Intsig Information had CN¥51.8m of debt, an increase on none, over one year. However, it does have CN¥2.90b in cash offsetting this, leading to net cash of CN¥2.84b.

A Look At Intsig Information's Liabilities

Zooming in on the latest balance sheet data, we can see that Intsig Information had liabilities of CN¥746.4m due within 12 months and liabilities of CN¥40.5m due beyond that. Offsetting this, it had CN¥2.90b in cash and CN¥121.9m in receivables that were due within 12 months. So it actually has CN¥2.23b more liquid assets than total liabilities.

This short term liquidity is a sign that Intsig Information could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Intsig Information boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Intsig Information

In addition to that, we're happy to report that Intsig Information has boosted its EBIT by 48%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Intsig Information'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Intsig Information has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Intsig Information actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Intsig Information has CN¥2.84b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 101% of that EBIT to free cash flow, bringing in CN¥214m. So is Intsig Information's debt a risk? It doesn't seem so to us. 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. For example - Intsig Information has 1 warning sign we think 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.