Beijing Si-Tech Information Technology (SZSE:300608) Is Making Moderate Use Of Debt

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. We note that Beijing Si-Tech Information Technology Co., Ltd. (SZSE:300608) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Beijing Si-Tech Information Technology

How Much Debt Does Beijing Si-Tech Information Technology Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Beijing Si-Tech Information Technology had debt of CN¥757.0m, up from CN¥675.8m in one year. However, it also had CN¥541.8m in cash, and so its net debt is CN¥215.2m.

How Strong Is Beijing Si-Tech Information Technology's Balance Sheet?

The latest balance sheet data shows that Beijing Si-Tech Information Technology had liabilities of CN¥718.0m due within a year, and liabilities of CN¥257.8m falling due after that. Offsetting these obligations, it had cash of CN¥541.8m as well as receivables valued at CN¥525.8m due within 12 months. So it actually has CN¥91.7m more liquid assets than total liabilities.

This state of affairs indicates that Beijing Si-Tech Information Technology's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥4.74b company is struggling for cash, we still think it's worth monitoring its balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Beijing Si-Tech Information Technology'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 Beijing Si-Tech Information Technology's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Beijing Si-Tech Information Technology produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CN¥40m at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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 Si-Tech Information Technology 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.