Shenzhen Zowee Technology (SZSE:002369) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, '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. We note that Shenzhen Zowee Technology Co., Ltd. (SZSE:002369) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Shenzhen Zowee Technology

What Is Shenzhen Zowee Technology's Debt?

The image below, which you can click on for greater detail, shows that Shenzhen Zowee Technology had debt of CN¥50.1m at the end of September 2024, a reduction from CN¥115.5m over a year. But on the other hand it also has CN¥364.9m in cash, leading to a CN¥314.8m net cash position.

How Strong Is Shenzhen Zowee Technology's Balance Sheet?

The latest balance sheet data shows that Shenzhen Zowee Technology had liabilities of CN¥1.06b due within a year, and liabilities of CN¥838.5m falling due after that. Offsetting this, it had CN¥364.9m in cash and CN¥337.7m in receivables that were due within 12 months. So its liabilities total CN¥1.20b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Shenzhen Zowee Technology is worth CN¥4.34b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Shenzhen Zowee Technology 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 Shenzhen Zowee Technology'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 Shenzhen Zowee Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 6.1%, to CN¥1.7b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Shenzhen Zowee Technology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Shenzhen Zowee Technology lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥74m of cash and made a loss of CN¥360m. While this does make the company a bit risky, it's important to remember it has net cash of CN¥314.8m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 1 warning sign for Shenzhen Zowee Technology you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.