Hi-Target Navigation TechLtd (SZSE:300177) Is Carrying A Fair Bit Of 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 Hi-Target Navigation Tech Co.,Ltd (SZSE:300177) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Hi-Target Navigation TechLtd

What Is Hi-Target Navigation TechLtd's Debt?

As you can see below, at the end of March 2024, Hi-Target Navigation TechLtd had CN¥537.9m of debt, up from CN¥468.6m a year ago. Click the image for more detail. On the flip side, it has CN¥419.3m in cash leading to net debt of about CN¥118.6m.

How Strong Is Hi-Target Navigation TechLtd's Balance Sheet?

The latest balance sheet data shows that Hi-Target Navigation TechLtd had liabilities of CN¥1.46b due within a year, and liabilities of CN¥57.8m falling due after that. On the other hand, it had cash of CN¥419.3m and CN¥1.19b worth of receivables due within a year. So it can boast CN¥87.7m more liquid assets than total liabilities.

Having regard to Hi-Target Navigation TechLtd'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¥5.13b company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Hi-Target Navigation TechLtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Hi-Target Navigation TechLtd made a loss at the EBIT level, and saw its revenue drop to CN¥1.1b, which is a fall of 12%. That's not what we would hope to see.

Caveat Emptor

While Hi-Target Navigation TechLtd's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CN¥532m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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 instance, we've identified 2 warning signs for Hi-Target Navigation TechLtd that you should be aware of.

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.

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