Health Check: How Prudently Does Glory View Technology (SZSE:301396) Use Debt?

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.' 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. As with many other companies Glory View Technology Co., Ltd. (SZSE:301396) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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 Glory View Technology

How Much Debt Does Glory View Technology Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Glory View Technology had debt of CN¥226.3m, up from CN¥177.1m in one year. But on the other hand it also has CN¥390.7m in cash, leading to a CN¥164.4m net cash position.

How Strong Is Glory View Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Glory View Technology had liabilities of CN¥735.9m due within 12 months and liabilities of CN¥75.3m due beyond that. Offsetting this, it had CN¥390.7m in cash and CN¥707.9m in receivables that were due within 12 months. So it can boast CN¥287.4m more liquid assets than total liabilities.

This surplus suggests that Glory View Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Glory View Technology 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 it is Glory View Technology'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.

Over 12 months, Glory View Technology made a loss at the EBIT level, and saw its revenue drop to CN¥600m, which is a fall of 18%. That's not what we would hope to see.

So How Risky Is Glory View Technology?

While Glory View Technology lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥7.2m. 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. 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. We've identified 4 warning signs with Glory View Technology (at least 3 which are a bit unpleasant) , and understanding them should be part of your investment process.

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.