We Think Montnets Cloud Technology Group (SZSE:002123) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Montnets Cloud Technology Group Co., Ltd. (SZSE:002123) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Montnets Cloud Technology Group

How Much Debt Does Montnets Cloud Technology Group Carry?

The image below, which you can click on for greater detail, shows that Montnets Cloud Technology Group had debt of CN¥1.27b at the end of March 2024, a reduction from CN¥1.61b over a year. However, it also had CN¥908.5m in cash, and so its net debt is CN¥358.8m.

How Healthy Is Montnets Cloud Technology Group's Balance Sheet?

According to the last reported balance sheet, Montnets Cloud Technology Group had liabilities of CN¥1.93b due within 12 months, and liabilities of CN¥208.9m due beyond 12 months. Offsetting this, it had CN¥908.5m in cash and CN¥1.64b in receivables that were due within 12 months. So it actually has CN¥414.7m more liquid assets than total liabilities.

This surplus suggests that Montnets Cloud Technology Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 Montnets Cloud Technology Group'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.

In the last year Montnets Cloud Technology Group wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to CN¥5.3b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Montnets Cloud Technology Group produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥143m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But a profit would do more to inspire us to research the business more closely. This one is a bit too risky for our liking. For riskier companies like Montnets Cloud Technology Group I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.

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