Does Shenzhen Bsc TechnologyLtd (SZSE:300951) Have A Healthy Balance Sheet?

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.' 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. We note that Shenzhen Bsc Technology Co.,Ltd. (SZSE:300951) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Shenzhen Bsc TechnologyLtd

How Much Debt Does Shenzhen Bsc TechnologyLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Shenzhen Bsc TechnologyLtd had CN¥20.0m of debt in September 2024, down from CN¥60.0m, one year before. But on the other hand it also has CN¥1.46b in cash, leading to a CN¥1.44b net cash position.

How Strong Is Shenzhen Bsc TechnologyLtd's Balance Sheet?

The latest balance sheet data shows that Shenzhen Bsc TechnologyLtd had liabilities of CN¥614.1m due within a year, and liabilities of CN¥69.0m falling due after that. On the other hand, it had cash of CN¥1.46b and CN¥756.5m worth of receivables due within a year. So it actually has CN¥1.53b more liquid assets than total liabilities.

This excess liquidity is a great indication that Shenzhen Bsc TechnologyLtd's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Shenzhen Bsc TechnologyLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Shenzhen Bsc TechnologyLtd's EBIT dived 16%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Shenzhen Bsc 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Shenzhen Bsc TechnologyLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Shenzhen Bsc TechnologyLtd recorded free cash flow of 49% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Shenzhen Bsc TechnologyLtd has net cash of CN¥1.44b, as well as more liquid assets than liabilities. So we are not troubled with Shenzhen Bsc TechnologyLtd's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Shenzhen Bsc TechnologyLtd that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.