Would Shenzhen Fastprint Circuit TechLtd (SZSE:002436) Be Better Off With Less Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Shenzhen Fastprint Circuit Tech Co.,Ltd. (SZSE:002436) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Shenzhen Fastprint Circuit TechLtd

How Much Debt Does Shenzhen Fastprint Circuit TechLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Shenzhen Fastprint Circuit TechLtd had CN¥4.83b of debt, an increase on CN¥4.04b, over one year. However, it does have CN¥1.68b in cash offsetting this, leading to net debt of about CN¥3.15b.

How Healthy Is Shenzhen Fastprint Circuit TechLtd's Balance Sheet?

According to the last reported balance sheet, Shenzhen Fastprint Circuit TechLtd had liabilities of CN¥4.11b due within 12 months, and liabilities of CN¥4.77b due beyond 12 months. On the other hand, it had cash of CN¥1.68b and CN¥2.37b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥4.83b.

While this might seem like a lot, it is not so bad since Shenzhen Fastprint Circuit TechLtd has a market capitalization of CN¥19.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Shenzhen Fastprint Circuit TechLtd'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.

Over 12 months, Shenzhen Fastprint Circuit TechLtd reported revenue of CN¥5.7b, which is a gain of 10%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Shenzhen Fastprint Circuit TechLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CN¥243m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥1.1b of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Shenzhen Fastprint Circuit TechLtd is showing 1 warning sign in our investment analysis , you should know about...

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.