Howard Marks put it nicely when he said that, rather than worrying about share price volatility, ❝e possibility of permanent loss is the risk I worry about… and every practical investor I know worries about.✩It❼only natural to consider a company❼balance sheet when you examine how risky it is, since debt is often involved when a business collapses上海品茶工作室. Importantly, Shanghai Huace Navigation Technology Ltd () does carry debt. But should shareholders be worried about its use of debt?
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 can❽fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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爱上海419. When we think about a company❼use of debt, we first look at cash and debt together.
The chart below, which you can click on for greater detail, shows that Shanghai Huace Navigation Technology had CN¥253.7m in debt in September 2024; about the same as the year before. But on the other hand it also has CN¥1.04b in cash, leading to a CN¥781.7m net cash position.
The latest balance sheet data shows that Shanghai Huace Navigation Technology had liabilities of CN¥1.05b due within a year, and liabilities of CN¥204.7m falling due after that. Offsetting these obligations, it had cash of CN¥1.04b as well as receivables valued at CN¥1.42b due within 12 months上海花千坊. So it can boast CN¥1.20b more liquid assets than total liabilities.
This short term liquidity is a sign that Shanghai Huace Navigation Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Shanghai Huace Navigation Technology has more cash than debt is arguably a good indication that it can manage its debt safely.
On top of that, Shanghai Huace Navigation Technology grew its EBIT by 39% over the last twelve months, and that growth will make it easier to handle its debt. There❼no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Shanghai Huace Navigation Technology can strengthen its balance sheet over time. So if you❻ focused on the future you can check out this free .
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Shanghai Huace Navigation Technology has net cash on its balance sheet, it❼still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, Shanghai Huace Navigation Technology recorded free cash flow of 48% of its EBIT, which is weaker than we❍expect. That❼not great, when it comes to paying down debt.
While it is always sensible to investigate a company❼debt, in this case Shanghai Huace Navigation Technology has CN¥781.7m in net cash and a decent-looking balance sheet上海新茶工作室. And we liked the look of last year❼39% year-on-year EBIT growth上海后花园论坛. So we don❽think Shanghai Huace Navigation Technology❼use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you❿ also come to that realization, you❻ in luck, because today you can for free.
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