Wus Printed Circuit (Kunshan) (SZSE:002463) Seems To Use Debt Rather Sparingly

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.' 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, Wus Printed Circuit (Kunshan) Co., Ltd. (SZSE:002463) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Wus Printed Circuit (Kunshan)

How Much Debt Does Wus Printed Circuit (Kunshan) Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Wus Printed Circuit (Kunshan) had CN¥3.41b of debt, an increase on CN¥2.40b, over one year. But on the other hand it also has CN¥3.83b in cash, leading to a CN¥415.9m net cash position.

How Healthy Is Wus Printed Circuit (Kunshan)'s Balance Sheet?

The latest balance sheet data shows that Wus Printed Circuit (Kunshan) had liabilities of CN¥6.40b due within a year, and liabilities of CN¥935.6m falling due after that. Offsetting this, it had CN¥3.83b in cash and CN¥2.51b in receivables that were due within 12 months. So it has liabilities totalling CN¥996.4m more than its cash and near-term receivables, combined.

Having regard to Wus Printed Circuit (Kunshan)'s size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥68.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Wus Printed Circuit (Kunshan) boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Wus Printed Circuit (Kunshan) grew its EBIT by 31% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Wus Printed Circuit (Kunshan)'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Wus Printed Circuit (Kunshan) has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Wus Printed Circuit (Kunshan) recorded free cash flow worth 76% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Wus Printed Circuit (Kunshan) has CN¥415.9m in net cash. And we liked the look of last year's 31% year-on-year EBIT growth. So we don't think Wus Printed Circuit (Kunshan)'s use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Wus Printed Circuit (Kunshan) has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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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