Does RAISECOM TECHNOLOGYLtd (SHSE:603803) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 note that RAISECOM TECHNOLOGY CO.,Ltd. (SHSE:603803) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is RAISECOM TECHNOLOGYLtd's Debt?

The image below, which you can click on for greater detail, shows that RAISECOM TECHNOLOGYLtd had debt of CN¥282.2m at the end of September 2024, a reduction from CN¥360.0m over a year. But on the other hand it also has CN¥660.9m in cash, leading to a CN¥378.6m net cash position.

How Healthy Is RAISECOM TECHNOLOGYLtd's Balance Sheet?

According to the last reported balance sheet, RAISECOM TECHNOLOGYLtd had liabilities of CN¥1.00b due within 12 months, and liabilities of CN¥57.8m due beyond 12 months. On the other hand, it had cash of CN¥660.9m and CN¥747.9m worth of receivables due within a year. So it actually has CN¥349.8m more liquid assets than total liabilities.

This surplus suggests that RAISECOM TECHNOLOGYLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, RAISECOM TECHNOLOGYLtd 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 RAISECOM TECHNOLOGYLtd'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.

See our latest analysis for RAISECOM TECHNOLOGYLtd

In the last year RAISECOM TECHNOLOGYLtd had a loss before interest and tax, and actually shrunk its revenue by 17%, to CN¥1.5b. We would much prefer see growth.

So How Risky Is RAISECOM TECHNOLOGYLtd?

Although RAISECOM TECHNOLOGYLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥116m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with RAISECOM TECHNOLOGYLtd .

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.