ArcherMind Technology (Nanjing) (SZSE:300598) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that ArcherMind Technology (Nanjing) Co., Ltd. (SZSE:300598) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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, 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 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 ArcherMind Technology (Nanjing)

What Is ArcherMind Technology (Nanjing)'s Debt?

As you can see below, ArcherMind Technology (Nanjing) had CN¥320.6m of debt at March 2024, down from CN¥393.9m a year prior. But on the other hand it also has CN¥757.4m in cash, leading to a CN¥436.8m net cash position.

How Strong Is ArcherMind Technology (Nanjing)'s Balance Sheet?

According to the last reported balance sheet, ArcherMind Technology (Nanjing) had liabilities of CN¥637.9m due within 12 months, and liabilities of CN¥5.40m due beyond 12 months. Offsetting these obligations, it had cash of CN¥757.4m as well as receivables valued at CN¥623.3m due within 12 months. So it can boast CN¥737.4m more liquid assets than total liabilities.

This surplus suggests that ArcherMind Technology (Nanjing) has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, ArcherMind Technology (Nanjing) boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is ArcherMind Technology (Nanjing)'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.

In the last year ArcherMind Technology (Nanjing)'s revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

So How Risky Is ArcherMind Technology (Nanjing)?

Although ArcherMind Technology (Nanjing) had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥208m. 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. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for ArcherMind Technology (Nanjing) you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.