Cubic Digital TechnologyLtd (SZSE:300344) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Cubic Digital Technology Co.,Ltd. (SZSE:300344) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Cubic Digital TechnologyLtd

What Is Cubic Digital TechnologyLtd's Debt?

As you can see below, Cubic Digital TechnologyLtd had CN¥25.0m of debt at September 2024, down from CN¥30.0m a year prior. But on the other hand it also has CN¥45.8m in cash, leading to a CN¥20.8m net cash position.

A Look At Cubic Digital TechnologyLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Cubic Digital TechnologyLtd had liabilities of CN¥190.0m due within 12 months and liabilities of CN¥5.10m due beyond that. Offsetting this, it had CN¥45.8m in cash and CN¥234.8m in receivables that were due within 12 months. So it actually has CN¥85.6m more liquid assets than total liabilities.

Having regard to Cubic Digital TechnologyLtd'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¥7.39b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Cubic Digital TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Cubic Digital TechnologyLtd 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, Cubic Digital TechnologyLtd reported revenue of CN¥286m, which is a gain of 99%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Cubic Digital TechnologyLtd?

While Cubic Digital TechnologyLtd lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥35m. 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 think its revenue growth of 99% is a good sign. We'd see further strong growth as an optimistic indication. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Cubic Digital TechnologyLtd you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.