Does Addsino (SZSE:000547) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Addsino Co., Ltd. (SZSE:000547) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Addsino

How Much Debt Does Addsino Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Addsino had CN¥1.37b of debt, an increase on CN¥669.9m, over one year. However, it does have CN¥1.40b in cash offsetting this, leading to net cash of CN¥36.6m.

How Healthy Is Addsino's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Addsino had liabilities of CN¥4.46b due within 12 months and liabilities of CN¥580.8m due beyond that. Offsetting this, it had CN¥1.40b in cash and CN¥3.07b in receivables that were due within 12 months. So its liabilities total CN¥565.6m more than the combination of its cash and short-term receivables.

Given Addsino has a market capitalization of CN¥10.2b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Addsino also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Addsino's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Addsino had a loss before interest and tax, and actually shrunk its revenue by 43%, to CN¥1.8b. To be frank that doesn't bode well.

So How Risky Is Addsino?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Addsino had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥835m and booked a CN¥2.0b accounting loss. However, it has net cash of CN¥36.6m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 - Addsino 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.