Hubei DOTI Micro Technology (SZSE:301183) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Hubei DOTI Micro Technology Co., Ltd. (SZSE:301183) does carry debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, 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 Hubei DOTI Micro Technology

How Much Debt Does Hubei DOTI Micro Technology Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Hubei DOTI Micro Technology had debt of CN¥35.5m, up from CN¥10.0m in one year. However, it does have CN¥359.1m in cash offsetting this, leading to net cash of CN¥323.6m.

A Look At Hubei DOTI Micro Technology's Liabilities

The latest balance sheet data shows that Hubei DOTI Micro Technology had liabilities of CN¥322.8m due within a year, and liabilities of CN¥30.7m falling due after that. Offsetting these obligations, it had cash of CN¥359.1m as well as receivables valued at CN¥343.9m due within 12 months. So it can boast CN¥349.5m more liquid assets than total liabilities.

This surplus suggests that Hubei DOTI Micro Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Hubei DOTI Micro 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 Hubei DOTI Micro Technology's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Hubei DOTI Micro Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 57%, to CN¥416m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Hubei DOTI Micro Technology?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Hubei DOTI Micro Technology had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥87m of cash and made a loss of CN¥20m. While this does make the company a bit risky, it's important to remember it has net cash of CN¥323.6m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Hubei DOTI Micro Technology may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Case in point: We've spotted 2 warning signs for Hubei DOTI Micro Technology 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.

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