Is HAND Enterprise Solutions (SZSE:300170) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that HAND Enterprise Solutions Co., Ltd. (SZSE:300170) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for HAND Enterprise Solutions

How Much Debt Does HAND Enterprise Solutions Carry?

The image below, which you can click on for greater detail, shows that at September 2024 HAND Enterprise Solutions had debt of CN¥483.5m, up from CN¥396.0m in one year. However, its balance sheet shows it holds CN¥1.48b in cash, so it actually has CN¥992.8m net cash.

A Look At HAND Enterprise Solutions' Liabilities

The latest balance sheet data shows that HAND Enterprise Solutions had liabilities of CN¥1.02b due within a year, and liabilities of CN¥116.6m falling due after that. Offsetting this, it had CN¥1.48b in cash and CN¥1.76b in receivables that were due within 12 months. So it can boast CN¥2.10b more liquid assets than total liabilities.

This surplus suggests that HAND Enterprise Solutions 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, HAND Enterprise Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is HAND Enterprise Solutions's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, HAND Enterprise Solutions saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is HAND Enterprise Solutions?

While HAND Enterprise Solutions lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥70m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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 HAND Enterprise Solutions you should be aware of.

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.