Does Sino-Entertainment Technology Holdings (HKG:6933) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Sino-Entertainment Technology Holdings Limited (HKG:6933) does use debt in its business. 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. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Sino-Entertainment Technology Holdings

What Is Sino-Entertainment Technology Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Sino-Entertainment Technology Holdings had CN¥24.3m of debt, an increase on CN¥23.2m, over one year. However, it does have CN¥77.7m in cash offsetting this, leading to net cash of CN¥53.4m.

A Look At Sino-Entertainment Technology Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Sino-Entertainment Technology Holdings had liabilities of CN¥36.6m due within 12 months and no liabilities due beyond that. On the other hand, it had cash of CN¥77.7m and CN¥45.6m worth of receivables due within a year. So it actually has CN¥86.7m more liquid assets than total liabilities.

This luscious liquidity implies that Sino-Entertainment Technology Holdings' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Sino-Entertainment Technology Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Sino-Entertainment Technology Holdings's earnings that will influence how the balance sheet holds up in the future. 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, Sino-Entertainment Technology Holdings reported revenue of CN¥38m, which is a gain of 1,175%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Sino-Entertainment Technology Holdings?

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-Entertainment Technology Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥32m of cash and made a loss of CN¥96m. However, it has net cash of CN¥53.4m, so it has a bit of time before it will need more capital. Importantly, Sino-Entertainment Technology Holdings's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. Case in point: We've spotted 3 warning signs for Sino-Entertainment Technology Holdings you should be aware of, and 2 of them can't be ignored.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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

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.