Is Sino-Synergy Hydrogen Energy Technology (Jiaxing) (HKG:9663) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Sino-Synergy Hydrogen Energy Technology (Jiaxing) Co., Ltd. (HKG:9663) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Sino-Synergy Hydrogen Energy Technology (Jiaxing)

How Much Debt Does Sino-Synergy Hydrogen Energy Technology (Jiaxing) Carry?

As you can see below, at the end of June 2024, Sino-Synergy Hydrogen Energy Technology (Jiaxing) had CN¥662.7m of debt, up from CN¥280.3m a year ago. Click the image for more detail. However, it does have CN¥1.26b in cash offsetting this, leading to net cash of CN¥593.9m.

How Healthy Is Sino-Synergy Hydrogen Energy Technology (Jiaxing)'s Balance Sheet?

The latest balance sheet data shows that Sino-Synergy Hydrogen Energy Technology (Jiaxing) had liabilities of CN¥1.41b due within a year, and liabilities of CN¥296.5m falling due after that. Offsetting this, it had CN¥1.26b in cash and CN¥1.64b in receivables that were due within 12 months. So it actually has CN¥1.19b more liquid assets than total liabilities.

This surplus suggests that Sino-Synergy Hydrogen Energy Technology (Jiaxing) has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Sino-Synergy Hydrogen Energy Technology (Jiaxing) 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 Sino-Synergy Hydrogen Energy Technology (Jiaxing) will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Sino-Synergy Hydrogen Energy Technology (Jiaxing) had a loss before interest and tax, and actually shrunk its revenue by 14%, to CN¥621m. That's not what we would hope to see.

So How Risky Is Sino-Synergy Hydrogen Energy Technology (Jiaxing)?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Sino-Synergy Hydrogen Energy Technology (Jiaxing) had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥625m and booked a CN¥492m accounting loss. However, it has net cash of CN¥593.9m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. To that end, you should be aware of the 1 warning sign we've spotted with Sino-Synergy Hydrogen Energy Technology (Jiaxing) .

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.

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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.