Is Feiyu Technology International (HKG:1022) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. As with many other companies Feiyu Technology International Company Ltd. (HKG:1022) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Feiyu Technology International

What Is Feiyu Technology International's Debt?

As you can see below, Feiyu Technology International had CN¥70.0m of debt at December 2022, down from CN¥80.0m a year prior. But on the other hand it also has CN¥133.4m in cash, leading to a CN¥63.4m net cash position.

How Strong Is Feiyu Technology International's Balance Sheet?

The latest balance sheet data shows that Feiyu Technology International had liabilities of CN¥87.7m due within a year, and liabilities of CN¥81.5m falling due after that. Offsetting these obligations, it had cash of CN¥133.4m as well as receivables valued at CN¥49.4m due within 12 months. So it can boast CN¥13.6m more liquid assets than total liabilities.

This surplus suggests that Feiyu Technology International has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Feiyu Technology International boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Feiyu Technology International 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.

Over 12 months, Feiyu Technology International reported revenue of CN¥192m, which is a gain of 83%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Feiyu Technology International?

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 Feiyu Technology International 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¥20m and booked a CN¥30m accounting loss. However, it has net cash of CN¥63.4m, so it has a bit of time before it will need more capital. Feiyu Technology International's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. We've identified 1 warning sign with Feiyu Technology International , and understanding them should be part of your investment process.

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.