Is InfoVision Optoelectronics (Kunshan) (SHSE:688055) 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.' 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 note that InfoVision Optoelectronics (Kunshan) Co., Ltd. (SHSE:688055) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for InfoVision Optoelectronics (Kunshan)

What Is InfoVision Optoelectronics (Kunshan)'s Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 InfoVision Optoelectronics (Kunshan) had CN¥1.54b of debt, an increase on CN¥1.08b, over one year. However, it does have CN¥2.09b in cash offsetting this, leading to net cash of CN¥550.0m.

How Healthy Is InfoVision Optoelectronics (Kunshan)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that InfoVision Optoelectronics (Kunshan) had liabilities of CN¥2.63b due within 12 months and liabilities of CN¥172.7m due beyond that. Offsetting these obligations, it had cash of CN¥2.09b as well as receivables valued at CN¥589.9m due within 12 months. So it has liabilities totalling CN¥131.0m more than its cash and near-term receivables, combined.

Having regard to InfoVision Optoelectronics (Kunshan)'s size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥11.3b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, InfoVision Optoelectronics (Kunshan) also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is InfoVision Optoelectronics (Kunshan)'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.

Over 12 months, InfoVision Optoelectronics (Kunshan) reported revenue of CN¥3.9b, which is a gain of 7.7%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is InfoVision Optoelectronics (Kunshan)?

Although InfoVision Optoelectronics (Kunshan) had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥466m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. Case in point: We've spotted 1 warning sign for InfoVision Optoelectronics (Kunshan) you should be aware of.

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.