Suxin Joyful Life Services (HKG:2152) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Suxin Joyful Life Services Co., Ltd. (HKG:2152) does carry 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Suxin Joyful Life Services

What Is Suxin Joyful Life Services's Debt?

The chart below, which you can click on for greater detail, shows that Suxin Joyful Life Services had CN¥293.1m in debt in December 2023; about the same as the year before. But it also has CN¥485.2m in cash to offset that, meaning it has CN¥192.1m net cash.

A Look At Suxin Joyful Life Services' Liabilities

According to the last reported balance sheet, Suxin Joyful Life Services had liabilities of CN¥510.9m due within 12 months, and liabilities of CN¥294.8m due beyond 12 months. Offsetting this, it had CN¥485.2m in cash and CN¥353.8m in receivables that were due within 12 months. So it can boast CN¥33.3m more liquid assets than total liabilities.

This surplus suggests that Suxin Joyful Life Services has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Suxin Joyful Life Services boasts net cash, so it's fair to say it does not have a heavy debt load!

Fortunately, Suxin Joyful Life Services grew its EBIT by 9.9% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Suxin Joyful Life Services'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Suxin Joyful Life Services may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Considering the last three years, Suxin Joyful Life Services actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case Suxin Joyful Life Services has CN¥192.1m in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 9.9% in the last twelve months. So we are not troubled with Suxin Joyful Life Services's debt use. 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. Case in point: We've spotted 3 warning signs for Suxin Joyful Life Services 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.