Is Beijing Tongtech (SZSE:300379) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Beijing Tongtech Co., Ltd. (SZSE:300379) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, 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 Beijing Tongtech

How Much Debt Does Beijing Tongtech Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Beijing Tongtech had CN¥165.3m of debt, an increase on CN¥67.1m, over one year. But it also has CN¥2.12b in cash to offset that, meaning it has CN¥1.95b net cash.

How Strong Is Beijing Tongtech's Balance Sheet?

The latest balance sheet data shows that Beijing Tongtech had liabilities of CN¥388.4m due within a year, and liabilities of CN¥64.8m falling due after that. On the other hand, it had cash of CN¥2.12b and CN¥791.3m worth of receivables due within a year. So it can boast CN¥2.46b more liquid assets than total liabilities.

This surplus suggests that Beijing Tongtech is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Beijing Tongtech 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 ultimately the future profitability of the business will decide if Beijing Tongtech can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Beijing Tongtech reported revenue of CN¥886m, which is a gain of 15%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Beijing Tongtech?

Although Beijing Tongtech had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥32m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Beijing Tongtech you should be aware of.

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.