Is Thunder Software TechnologyLtd (SZSE:300496) Weighed On By Its Debt Load?

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 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. Importantly, Thunder Software Technology Co.,Ltd. (SZSE:300496) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Thunder Software TechnologyLtd

How Much Debt Does Thunder Software TechnologyLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Thunder Software TechnologyLtd had CN¥14.9m of debt in September 2024, down from CN¥69.5m, one year before. But on the other hand it also has CN¥3.21b in cash, leading to a CN¥3.20b net cash position.

A Look At Thunder Software TechnologyLtd's Liabilities

The latest balance sheet data shows that Thunder Software TechnologyLtd had liabilities of CN¥1.48b due within a year, and liabilities of CN¥125.1m falling due after that. Offsetting these obligations, it had cash of CN¥3.21b as well as receivables valued at CN¥1.87b due within 12 months. So it can boast CN¥3.47b more liquid assets than total liabilities.

This short term liquidity is a sign that Thunder Software TechnologyLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Thunder Software TechnologyLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Thunder Software TechnologyLtd 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, Thunder Software TechnologyLtd made a loss at the EBIT level, and saw its revenue drop to CN¥5.1b, which is a fall of 7.5%. That's not what we would hope to see.

So How Risky Is Thunder Software TechnologyLtd?

While Thunder Software TechnologyLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥12m. So taking that on face value, and considering the cash, we don't think its very risky in the near 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 3 warning signs for Thunder Software TechnologyLtd 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.