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 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 Beijing Philisense Technology Co., Ltd. (SZSE:300287) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Beijing Philisense Technology

What Is Beijing Philisense Technology's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Beijing Philisense Technology had CN¥17.3m of debt in September 2024, down from CN¥37.4m, one year before. But it also has CN¥61.7m in cash to offset that, meaning it has CN¥44.4m net cash.

How Strong Is Beijing Philisense Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Beijing Philisense Technology had liabilities of CN¥1.24b due within 12 months and liabilities of CN¥38.4m due beyond that. Offsetting these obligations, it had cash of CN¥61.7m as well as receivables valued at CN¥767.7m due within 12 months. So it has liabilities totalling CN¥447.0m more than its cash and near-term receivables, combined.

Of course, Beijing Philisense Technology has a market capitalization of CN¥6.89b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Beijing Philisense Technology boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Beijing Philisense Technology's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Beijing Philisense Technology made a loss at the EBIT level, and saw its revenue drop to CN¥593m, which is a fall of 32%. That makes us nervous, to say the least.

So How Risky Is Beijing Philisense Technology?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Beijing Philisense Technology had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥14m of cash and made a loss of CN¥261m. While this does make the company a bit risky, it's important to remember it has net cash of CN¥44.4m. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Beijing Philisense Technology , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.