Is Nanya New Material TechnologyLtd (SHSE:688519) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Nanya New Material Technology Co.,Ltd (SHSE:688519) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Nanya New Material TechnologyLtd

What Is Nanya New Material TechnologyLtd's Debt?

The image below, which you can click on for greater detail, shows that Nanya New Material TechnologyLtd had debt of CN¥325.2m at the end of September 2024, a reduction from CN¥560.2m over a year. However, its balance sheet shows it holds CN¥571.6m in cash, so it actually has CN¥246.4m net cash.

A Look At Nanya New Material TechnologyLtd's Liabilities

The latest balance sheet data shows that Nanya New Material TechnologyLtd had liabilities of CN¥2.03b due within a year, and liabilities of CN¥197.0m falling due after that. Offsetting this, it had CN¥571.6m in cash and CN¥1.87b in receivables that were due within 12 months. So it actually has CN¥218.9m more liquid assets than total liabilities.

This surplus suggests that Nanya New Material TechnologyLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Nanya New Material TechnologyLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Nanya New Material TechnologyLtd will need earnings to service that debt. 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, Nanya New Material TechnologyLtd made a loss at the EBIT level, and saw its revenue drop to CN¥3.1b, which is a fall of 5.6%. We would much prefer see growth.

So How Risky Is Nanya New Material TechnologyLtd?

Although Nanya New Material TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥36m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Nanya New Material TechnologyLtd you should be aware of, and 1 of them is a bit concerning.

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.