Does SenseTime Group (HKG:20) 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. Importantly, SenseTime Group Inc. (HKG:20) does carry debt. But the more important question is: how much risk is that debt creating?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is SenseTime Group's Net Debt?

As you can see below, at the end of December 2024, SenseTime Group had CN¥5.92b of debt, up from CN¥4.47b a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥12.6b in cash, so it actually has CN¥6.64b net cash.

How Strong Is SenseTime Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SenseTime Group had liabilities of CN¥4.75b due within 12 months and liabilities of CN¥6.20b due beyond that. Offsetting these obligations, it had cash of CN¥12.6b as well as receivables valued at CN¥2.74b due within 12 months. So it can boast CN¥4.35b more liquid assets than total liabilities.

This short term liquidity is a sign that SenseTime Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that SenseTime Group 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 future earnings, more than anything, that will determine SenseTime Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for SenseTime Group

In the last year SenseTime Group wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to CN¥3.8b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is SenseTime Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year SenseTime Group had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥5.1b and booked a CN¥4.3b accounting loss. However, it has net cash of CN¥6.64b, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with SenseTime Group , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.