SunCar Technology Group (NASDAQ:SDA) Is Making Moderate Use Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that SunCar Technology Group Inc. (NASDAQ:SDA) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for SunCar Technology Group

What Is SunCar Technology Group's Net Debt?

The image below, which you can click on for greater detail, shows that SunCar Technology Group had debt of US$81.3m at the end of June 2024, a reduction from US$124.1m over a year. However, it also had US$41.8m in cash, and so its net debt is US$39.5m.

How Strong Is SunCar Technology Group's Balance Sheet?

We can see from the most recent balance sheet that SunCar Technology Group had liabilities of US$144.7m falling due within a year, and liabilities of US$29.8m due beyond that. On the other hand, it had cash of US$41.8m and US$79.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$53.6m.

Since publicly traded SunCar Technology Group shares are worth a total of US$989.7m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is SunCar Technology Group'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, SunCar Technology Group reported revenue of US$407m, which is a gain of 29%, 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.

Caveat Emptor

While we can certainly appreciate SunCar Technology Group's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost US$75m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$14m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. To that end, you should learn about the 2 warning signs we've spotted with SunCar Technology Group (including 1 which can't be ignored) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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