Is Zhejiang Viewshine Intelligent MeterLtd (SZSE:002849) Using Too Much Debt?

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.' 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. Importantly, Zhejiang Viewshine Intelligent Meter Co.,Ltd (SZSE:002849) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Zhejiang Viewshine Intelligent MeterLtd

How Much Debt Does Zhejiang Viewshine Intelligent MeterLtd Carry?

As you can see below, Zhejiang Viewshine Intelligent MeterLtd had CN¥163.9m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has CN¥546.2m in cash, leading to a CN¥382.3m net cash position.

A Look At Zhejiang Viewshine Intelligent MeterLtd's Liabilities

The latest balance sheet data shows that Zhejiang Viewshine Intelligent MeterLtd had liabilities of CN¥884.7m due within a year, and liabilities of CN¥159.3m falling due after that. On the other hand, it had cash of CN¥546.2m and CN¥993.7m worth of receivables due within a year. So it can boast CN¥495.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Zhejiang Viewshine Intelligent MeterLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Zhejiang Viewshine Intelligent MeterLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Zhejiang Viewshine Intelligent MeterLtd grew its EBIT by 41% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Zhejiang Viewshine Intelligent MeterLtd'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Zhejiang Viewshine Intelligent MeterLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Zhejiang Viewshine Intelligent MeterLtd produced sturdy free cash flow equating to 54% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Zhejiang Viewshine Intelligent MeterLtd has net cash of CN¥382.3m, as well as more liquid assets than liabilities. And we liked the look of last year's 41% year-on-year EBIT growth. So is Zhejiang Viewshine Intelligent MeterLtd's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 4 warning signs for Zhejiang Viewshine Intelligent MeterLtd (1 is potentially serious!) that you should be aware of before investing here.

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.