Invengo Information TechnologyLtd (SZSE:002161) Is Carrying A Fair Bit Of Debt

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.' 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 Invengo Information Technology Co.,Ltd. (SZSE:002161) makes use of debt. But should shareholders be worried about its use of debt?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Invengo Information TechnologyLtd

What Is Invengo Information TechnologyLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Invengo Information TechnologyLtd had CN¥786.3m of debt, an increase on CN¥745.8m, over one year. However, it does have CN¥691.2m in cash offsetting this, leading to net debt of about CN¥95.0m.

A Look At Invengo Information TechnologyLtd's Liabilities

The latest balance sheet data shows that Invengo Information TechnologyLtd had liabilities of CN¥790.2m due within a year, and liabilities of CN¥438.8m falling due after that. Offsetting these obligations, it had cash of CN¥691.2m as well as receivables valued at CN¥226.1m due within 12 months. So it has liabilities totalling CN¥311.6m more than its cash and near-term receivables, combined.

Of course, Invengo Information TechnologyLtd has a market capitalization of CN¥4.42b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But it is Invengo Information TechnologyLtd's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year Invengo Information TechnologyLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 8.5%, to CN¥602m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Invengo Information TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥21m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥33m of cash over the last year. So to be blunt we think it is risky. 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 4 warning signs for Invengo Information TechnologyLtd (1 is potentially serious) 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.