Does Orbbec (SHSE:688322) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Orbbec Inc. (SHSE:688322) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Orbbec

What Is Orbbec's Net Debt?

As you can see below, at the end of September 2023, Orbbec had CN¥104.4m of debt, up from none a year ago. Click the image for more detail. However, it does have CN¥1.70b in cash offsetting this, leading to net cash of CN¥1.59b.

A Look At Orbbec's Liabilities

We can see from the most recent balance sheet that Orbbec had liabilities of CN¥266.2m falling due within a year, and liabilities of CN¥42.7m due beyond that. Offsetting this, it had CN¥1.70b in cash and CN¥121.7m in receivables that were due within 12 months. So it can boast CN¥1.51b more liquid assets than total liabilities.

This surplus suggests that Orbbec has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Orbbec boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Orbbec'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.

Over 12 months, Orbbec made a loss at the EBIT level, and saw its revenue drop to CN¥364m, which is a fall of 11%. We would much prefer see growth.

So How Risky Is Orbbec?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Orbbec had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥412m and booked a CN¥276m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥1.59b. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 example - Orbbec has 1 warning sign we think 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.