Is HNA TechnologyLtd (SHSE:600751) Using Too Much Debt?

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. We can see that HNA Technology Co.,Ltd. (SHSE:600751) does use debt in its business. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for HNA TechnologyLtd

What Is HNA TechnologyLtd's Net Debt?

As you can see below, at the end of September 2024, HNA TechnologyLtd had CN¥1.06b of debt, up from none a year ago. Click the image for more detail. However, it does have CN¥3.77b in cash offsetting this, leading to net cash of CN¥2.71b.

How Strong Is HNA TechnologyLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HNA TechnologyLtd had liabilities of CN¥1.64b due within 12 months and liabilities of CN¥463.2m due beyond that. Offsetting this, it had CN¥3.77b in cash and CN¥496.7m in receivables that were due within 12 months. So it actually has CN¥2.16b more liquid assets than total liabilities.

This surplus suggests that HNA TechnologyLtd is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, HNA TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is HNA TechnologyLtd'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, HNA TechnologyLtd reported revenue of CN¥1.2b, which is a gain of 224%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is HNA TechnologyLtd?

Although HNA TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥65m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 224% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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. To that end, you should be aware of the 1 warning sign we've spotted with HNA TechnologyLtd .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.