Is Beijing StarNeto Technology (SZSE:002829) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Beijing StarNeto Technology Co., Ltd. (SZSE:002829) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for Beijing StarNeto Technology

What Is Beijing StarNeto Technology's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Beijing StarNeto Technology had debt of CN¥188.5m, up from CN¥140.5m in one year. But it also has CN¥416.8m in cash to offset that, meaning it has CN¥228.3m net cash.

How Strong Is Beijing StarNeto Technology's Balance Sheet?

According to the last reported balance sheet, Beijing StarNeto Technology had liabilities of CN¥815.1m due within 12 months, and liabilities of CN¥48.8m due beyond 12 months. Offsetting these obligations, it had cash of CN¥416.8m as well as receivables valued at CN¥909.1m due within 12 months. So it can boast CN¥462.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Beijing StarNeto Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Beijing StarNeto Technology boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Beijing StarNeto Technology can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Beijing StarNeto Technology made a loss at the EBIT level, and saw its revenue drop to CN¥310m, which is a fall of 74%. That makes us nervous, to say the least.

So How Risky Is Beijing StarNeto Technology?

While Beijing StarNeto Technology lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥75m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Beijing StarNeto Technology's profit, revenue, and operating cashflow have changed over the last few years.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.