Is Gosuncn Technology Group (SZSE:300098) Using Debt In A Risky Way?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. Importantly, Gosuncn Technology Group Co., Ltd. (SZSE:300098) does carry debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Gosuncn Technology Group

What Is Gosuncn Technology Group's Debt?

As you can see below, Gosuncn Technology Group had CN¥251.0m of debt at September 2023, down from CN¥296.4m a year prior. But it also has CN¥548.3m in cash to offset that, meaning it has CN¥297.2m net cash.

How Healthy Is Gosuncn Technology Group's Balance Sheet?

We can see from the most recent balance sheet that Gosuncn Technology Group had liabilities of CN¥1.66b falling due within a year, and liabilities of CN¥340.6m due beyond that. On the other hand, it had cash of CN¥548.3m and CN¥1.87b worth of receivables due within a year. So it can boast CN¥411.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Gosuncn Technology Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Gosuncn Technology Group boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Gosuncn Technology Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Gosuncn Technology Group made a loss at the EBIT level, and saw its revenue drop to CN¥1.9b, which is a fall of 32%. To be frank that doesn't bode well.

So How Risky Is Gosuncn Technology Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Gosuncn Technology Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥41m of cash and made a loss of CN¥266m. While this does make the company a bit risky, it's important to remember it has net cash of CN¥297.2m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 Gosuncn Technology Group'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.