Is TRS Information Technology (SZSE:300229) A Risky Investment?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies TRS Information Technology Co., Ltd. (SZSE:300229) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for TRS Information Technology

How Much Debt Does TRS Information Technology Carry?

The image below, which you can click on for greater detail, shows that at June 2024 TRS Information Technology had debt of CN¥24.0m, up from none in one year. But on the other hand it also has CN¥449.6m in cash, leading to a CN¥425.6m net cash position.

How Healthy Is TRS Information Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TRS Information Technology had liabilities of CN¥313.9m due within 12 months and liabilities of CN¥14.0m due beyond that. Offsetting this, it had CN¥449.6m in cash and CN¥733.7m in receivables that were due within 12 months. So it actually has CN¥855.3m more liquid assets than total liabilities.

This short term liquidity is a sign that TRS Information Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, TRS Information Technology 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 TRS Information Technology'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.

Over 12 months, TRS Information Technology made a loss at the EBIT level, and saw its revenue drop to CN¥734m, which is a fall of 21%. To be frank that doesn't bode well.

So How Risky Is TRS Information Technology?

Although TRS Information Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥27m. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for TRS Information Technology that you should be aware of before investing here.

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.