Is Beijing Philisense Technology (SZSE:300287) Using Debt Sensibly?

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.' 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 Beijing Philisense Technology Co., Ltd. (SZSE:300287) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Beijing Philisense Technology

What Is Beijing Philisense Technology's Debt?

As you can see below, Beijing Philisense Technology had CN¥27.8m of debt at March 2024, down from CN¥58.2m a year prior. However, its balance sheet shows it holds CN¥48.9m in cash, so it actually has CN¥21.1m net cash.

A Look At Beijing Philisense Technology's Liabilities

We can see from the most recent balance sheet that Beijing Philisense Technology had liabilities of CN¥1.24b falling due within a year, and liabilities of CN¥40.1m due beyond that. Offsetting these obligations, it had cash of CN¥48.9m as well as receivables valued at CN¥809.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥417.3m.

Given Beijing Philisense Technology has a market capitalization of CN¥4.12b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Beijing Philisense Technology also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Beijing Philisense Technology'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.

In the last year Beijing Philisense Technology had a loss before interest and tax, and actually shrunk its revenue by 40%, to CN¥675m. To be frank that doesn't bode well.

So How Risky Is Beijing Philisense Technology?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Beijing Philisense Technology had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥5.6m and booked a CN¥314m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥21.1m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Beijing Philisense Technology you should know about.

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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