Does China Singyes New Materials Holdings (HKG:8073) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that China Singyes New Materials Holdings Limited (HKG:8073) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 China Singyes New Materials Holdings

What Is China Singyes New Materials Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that China Singyes New Materials Holdings had CN¥34.0m of debt in June 2023, down from CN¥48.0m, one year before. But it also has CN¥38.0m in cash to offset that, meaning it has CN¥3.99m net cash.

How Healthy Is China Singyes New Materials Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that China Singyes New Materials Holdings had liabilities of CN¥78.5m due within 12 months and liabilities of CN¥28.6m due beyond that. On the other hand, it had cash of CN¥38.0m and CN¥148.0m worth of receivables due within a year. So it actually has CN¥78.9m more liquid assets than total liabilities.

This luscious liquidity implies that China Singyes New Materials Holdings' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that China Singyes New Materials Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is China Singyes New Materials Holdings'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 China Singyes New Materials Holdings had a loss before interest and tax, and actually shrunk its revenue by 24%, to CN¥80m. To be frank that doesn't bode well.

So How Risky Is China Singyes New Materials Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year China Singyes New Materials Holdings had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥12m of cash and made a loss of CN¥7.3m. With only CN¥3.99m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For instance, we've identified 3 warning signs for China Singyes New Materials Holdings (2 can't be ignored) you should be aware of.

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.