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

Warren Buffett famously said, '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. We note that Beijing Philisense Technology Co., Ltd. (SZSE:300287) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Beijing Philisense Technology's 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. However, its balance sheet shows it holds CN¥61.7m in cash, so it actually has CN¥44.4m net cash.

How Strong Is Beijing Philisense Technology's Balance Sheet?

The latest balance sheet data shows that Beijing Philisense Technology had liabilities of CN¥1.24b due within a year, and liabilities of CN¥38.4m falling due after that. Offsetting this, it had CN¥61.7m in cash and CN¥767.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥447.0m.

Of course, Beijing Philisense Technology has a market capitalization of CN¥8.87b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Beijing Philisense 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 you can't view debt in total isolation; since Beijing Philisense Technology will need earnings to service that debt. 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.

See our latest analysis for Beijing Philisense Technology

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?

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. Indeed, in that time it burnt through CN¥14m of cash and made a loss of CN¥261m. But the saving grace is the CN¥44.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For instance, we've identified 2 warning signs for Beijing Philisense Technology that 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.