Is RAISECOM TECHNOLOGYLtd (SHSE:603803) A Risky Investment?

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. Importantly, RAISECOM TECHNOLOGY CO.,Ltd. (SHSE:603803) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. 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 RAISECOM TECHNOLOGYLtd

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 it also has CN¥660.9m in cash to offset that, meaning it has CN¥378.6m net cash.

A Look At RAISECOM TECHNOLOGYLtd's Liabilities

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 can boast 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year RAISECOM TECHNOLOGYLtd had a loss before interest and tax, and actually shrunk its revenue by 17%, to CN¥1.5b. That's not what we would hope to see.

So How Risky Is RAISECOM TECHNOLOGYLtd?

While RAISECOM TECHNOLOGYLtd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for RAISECOM TECHNOLOGYLtd 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.

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.