Is Beijing Bayi Space LCD TechnologyLtd (SHSE:688181) 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. As with many other companies Beijing Bayi Space LCD Technology Co.,Ltd. (SHSE:688181) makes use of debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Beijing Bayi Space LCD TechnologyLtd

What Is Beijing Bayi Space LCD TechnologyLtd's Net Debt?

As you can see below, at the end of September 2024, Beijing Bayi Space LCD TechnologyLtd had CN¥213.6m of debt, up from CN¥201.7m a year ago. Click the image for more detail. But on the other hand it also has CN¥524.3m in cash, leading to a CN¥310.7m net cash position.

A Look At Beijing Bayi Space LCD TechnologyLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Beijing Bayi Space LCD TechnologyLtd had liabilities of CN¥549.3m due within 12 months and liabilities of CN¥111.1m due beyond that. Offsetting these obligations, it had cash of CN¥524.3m as well as receivables valued at CN¥174.5m due within 12 months. So it can boast CN¥38.4m more liquid assets than total liabilities.

This state of affairs indicates that Beijing Bayi Space LCD TechnologyLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥4.63b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Beijing Bayi Space LCD TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact Beijing Bayi Space LCD TechnologyLtd's saving grace is its low debt levels, because its EBIT has tanked 35% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Beijing Bayi Space LCD TechnologyLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Beijing Bayi Space LCD TechnologyLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Beijing Bayi Space LCD TechnologyLtd burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Beijing Bayi Space LCD TechnologyLtd has CN¥310.7m in net cash and a decent-looking balance sheet. So although we see some areas for improvement, we're not too worried about Beijing Bayi Space LCD TechnologyLtd's balance sheet. 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. For instance, we've identified 3 warning signs for Beijing Bayi Space LCD TechnologyLtd (1 is concerning) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.