Is Hangzhou CNCR-ITLtd (SZSE:300250) Weighed On By Its Debt Load?

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. As with many other companies Hangzhou CNCR-IT Co.,Ltd (SZSE:300250) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Hangzhou CNCR-ITLtd

What Is Hangzhou CNCR-ITLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Hangzhou CNCR-ITLtd had CN¥48.0m of debt, an increase on CN¥25.0m, over one year. But it also has CN¥248.9m in cash to offset that, meaning it has CN¥200.9m net cash.

How Healthy Is Hangzhou CNCR-ITLtd's Balance Sheet?

The latest balance sheet data shows that Hangzhou CNCR-ITLtd had liabilities of CN¥201.7m due within a year, and liabilities of CN¥12.2m falling due after that. On the other hand, it had cash of CN¥248.9m and CN¥138.2m worth of receivables due within a year. So it actually has CN¥173.2m more liquid assets than total liabilities.

This surplus suggests that Hangzhou CNCR-ITLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Hangzhou CNCR-ITLtd 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 it is Hangzhou CNCR-ITLtd's earnings that will influence how the balance sheet holds up in the future. 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, Hangzhou CNCR-ITLtd saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Hangzhou CNCR-ITLtd?

While Hangzhou CNCR-ITLtd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥400k. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Hangzhou CNCR-ITLtd that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.