Is Visionox Technology (SZSE:002387) Weighed On By Its Debt Load?

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. Importantly, Visionox Technology Inc. (SZSE:002387) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Visionox Technology

What Is Visionox Technology's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Visionox Technology had debt of CN¥12.1b, up from CN¥8.73b in one year. However, it also had CN¥10.4b in cash, and so its net debt is CN¥1.77b.

How Healthy Is Visionox Technology's Balance Sheet?

The latest balance sheet data shows that Visionox Technology had liabilities of CN¥25.3b due within a year, and liabilities of CN¥9.10b falling due after that. Offsetting these obligations, it had cash of CN¥10.4b as well as receivables valued at CN¥4.63b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥19.4b.

This deficit casts a shadow over the CN¥8.67b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Visionox Technology would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Visionox Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Visionox Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 2.9%, to CN¥7.0b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Visionox Technology had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CN¥4.2b at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of CN¥3.6b didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Visionox Technology you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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