CICT Mobile Communication Technology (SHSE:688387) Has Debt But No Earnings; Should You Worry?

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. Importantly, CICT Mobile Communication Technology Co., Ltd. (SHSE:688387) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for CICT Mobile Communication Technology

What Is CICT Mobile Communication Technology's Debt?

As you can see below, CICT Mobile Communication Technology had CN¥1.57b of debt at September 2024, down from CN¥2.00b a year prior. However, it does have CN¥4.58b in cash offsetting this, leading to net cash of CN¥3.00b.

How Healthy Is CICT Mobile Communication Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CICT Mobile Communication Technology had liabilities of CN¥6.83b due within 12 months and liabilities of CN¥376.3m due beyond that. Offsetting this, it had CN¥4.58b in cash and CN¥5.61b in receivables that were due within 12 months. So it actually has CN¥2.98b more liquid assets than total liabilities.

This surplus suggests that CICT Mobile Communication Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, CICT Mobile Communication Technology 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 ultimately the future profitability of the business will decide if CICT Mobile Communication Technology 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.

Over 12 months, CICT Mobile Communication Technology made a loss at the EBIT level, and saw its revenue drop to CN¥6.7b, which is a fall of 14%. We would much prefer see growth.

So How Risky Is CICT Mobile Communication Technology?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that CICT Mobile Communication Technology had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥285m of cash and made a loss of CN¥325m. But the saving grace is the CN¥3.00b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how CICT Mobile Communication Technology's profit, revenue, and operating cashflow have changed over the last few years.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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.