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

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, ArcherMind Technology (Nanjing) Co., Ltd. (SZSE:300598) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ArcherMind Technology (Nanjing)

What Is ArcherMind Technology (Nanjing)'s Net Debt?

The image below, which you can click on for greater detail, shows that ArcherMind Technology (Nanjing) had debt of CN¥295.2m at the end of September 2024, a reduction from CN¥458.7m over a year. However, it does have CN¥572.1m in cash offsetting this, leading to net cash of CN¥276.9m.

A Look At ArcherMind Technology (Nanjing)'s Liabilities

We can see from the most recent balance sheet that ArcherMind Technology (Nanjing) had liabilities of CN¥684.9m falling due within a year, and liabilities of CN¥10.7m due beyond that. On the other hand, it had cash of CN¥572.1m and CN¥737.3m worth of receivables due within a year. So it can boast CN¥613.7m 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. Simply put, the fact that ArcherMind Technology (Nanjing) 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 it is ArcherMind Technology (Nanjing)'s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year ArcherMind Technology (Nanjing) wasn't profitable at an EBIT level, but managed to grow its revenue by 6.2%, to CN¥1.9b. We usually like to see faster growth from unprofitable companies, but each to their own.

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¥259m. 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. However, not all investment risk resides within the balance sheet - far from it. Be aware that ArcherMind Technology (Nanjing) is showing 2 warning signs in our investment analysis , you should know about...

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.