Suzhou HYC TechnologyLtd (SHSE:688001) Is Carrying A Fair Bit 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Suzhou HYC Technology Co.,Ltd. (SHSE:688001) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Suzhou HYC TechnologyLtd

How Much Debt Does Suzhou HYC TechnologyLtd Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Suzhou HYC TechnologyLtd had debt of CN¥931.9m, up from CN¥828.4m in one year. However, because it has a cash reserve of CN¥486.5m, its net debt is less, at about CN¥445.5m.

A Look At Suzhou HYC TechnologyLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Suzhou HYC TechnologyLtd had liabilities of CN¥854.0m due within 12 months and liabilities of CN¥878.1m due beyond that. On the other hand, it had cash of CN¥486.5m and CN¥1.36b worth of receivables due within a year. So it actually has CN¥119.2m more liquid assets than total liabilities.

This state of affairs indicates that Suzhou HYC TechnologyLtd'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¥12.7b company is struggling for cash, we still think it's worth monitoring its balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Suzhou HYC TechnologyLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Suzhou HYC TechnologyLtd had a loss before interest and tax, and actually shrunk its revenue by 9.5%, to CN¥1.8b. We would much prefer see growth.

Caveat Emptor

Importantly, Suzhou HYC TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥50m 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. There's no doubt that we learn most about debt from the balance sheet. 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 2 warning signs for Suzhou HYC TechnologyLtd (of which 1 doesn't sit too well with us!) 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.

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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.