Does Surfilter Network Technology (SZSE:300311) Have A Healthy Balance Sheet?
Surfilter Network Technology (SZSE:300311) has increased its debt to CN¥43.0m from CN¥19.5m over the past year, but maintains a strong cash position of CN¥210.6m, resulting in net cash of CN¥167.6m. With total liabilities of CN¥612.5m, the company appears to manage its debt well, despite not being profitable at the EBIT level. Revenue grew by 7.7% to CN¥579m, but caution is advised due to the lack of positive EBIT and modest growth. Overall, the balance sheet indicates manageable risk, but investors should be aware of potential warning signs.
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.' 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. We note that Surfilter Network Technology Co., Ltd. (SZSE:300311) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Surfilter Network Technology's Debt?
As you can see below, at the end of September 2024, Surfilter Network Technology had CN¥43.0m of debt, up from CN¥19.5m a year ago. Click the image for more detail. However, it does have CN¥210.6m in cash offsetting this, leading to net cash of CN¥167.6m.
How Healthy Is Surfilter Network Technology's Balance Sheet?
We can see from the most recent balance sheet that Surfilter Network Technology had liabilities of CN¥528.2m falling due within a year, and liabilities of CN¥84.3m due beyond that. On the other hand, it had cash of CN¥210.6m and CN¥323.0m worth of receivables due within a year. So it has liabilities totalling CN¥79.0m more than its cash and near-term receivables, combined.
Having regard to Surfilter Network Technology's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥4.51b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Surfilter Network Technology also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Surfilter Network Technology will need earnings to service that debt. 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.
View our latest analysis for Surfilter Network Technology
In the last year Surfilter Network Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 7.7%, to CN¥579m. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Surfilter Network Technology?
Although Surfilter Network Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥2.5m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 2 warning signs for Surfilter Network Technology you should be aware of.
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.
