Ubtech Robotics (HKG:9880) Is Making Moderate Use Of Debt

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, Ubtech Robotics Corp Ltd (HKG:9880) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Ubtech Robotics

What Is Ubtech Robotics's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2023 Ubtech Robotics had debt of CN¥1.45b, up from CN¥622.7m in one year. However, it does have CN¥541.4m in cash offsetting this, leading to net debt of about CN¥912.1m.

A Look At Ubtech Robotics' Liabilities

Zooming in on the latest balance sheet data, we can see that Ubtech Robotics had liabilities of CN¥1.95b due within 12 months and liabilities of CN¥724.6m due beyond that. On the other hand, it had cash of CN¥541.4m and CN¥1.67b worth of receivables due within a year. So its liabilities total CN¥464.4m more than the combination of its cash and short-term receivables.

Having regard to Ubtech Robotics' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥59.5b company is short on cash, but still worth keeping an eye on the balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Ubtech Robotics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Ubtech Robotics wasn't profitable at an EBIT level, but managed to grow its revenue by 4.7%, to CN¥1.1b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Ubtech Robotics produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥1.2b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.5b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Ubtech Robotics (of which 1 can't be ignored!) you should know about.

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.

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