Does Vanjee Technology (SZSE:300552) Have A Healthy Balance Sheet?

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.' 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, Vanjee Technology Co., Ltd. (SZSE:300552) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Vanjee Technology

What Is Vanjee Technology's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Vanjee Technology had debt of CN¥115.0m, up from none in one year. But it also has CN¥513.9m in cash to offset that, meaning it has CN¥398.9m net cash.

How Strong Is Vanjee Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Vanjee Technology had liabilities of CN¥856.0m due within 12 months and liabilities of CN¥124.5m due beyond that. On the other hand, it had cash of CN¥513.9m and CN¥1.11b worth of receivables due within a year. So it can boast CN¥642.3m more liquid assets than total liabilities.

This surplus suggests that Vanjee Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Vanjee Technology 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 it is future earnings, more than anything, that will determine Vanjee Technology'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.

In the last year Vanjee Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to CN¥962m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Vanjee Technology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Vanjee Technology lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥277m and booked a CN¥374m accounting loss. However, it has net cash of CN¥398.9m, so it has a bit of time before it will need more capital. Vanjee Technology's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Vanjee Technology is showing 1 warning sign in our investment analysis , you should know about...

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.

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