Technology industry

Is the China Technology Industry Group (HKG:8111) using too much debt?

David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Mostly, China Technology Industry Group Limited (HKG:8111) is in debt. But should shareholders worry about its use of debt?

When is debt dangerous?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.

Check out our latest analysis for China Technology Industry Group

What is China Technology Industry Group’s debt?

You can click on the chart below for historical numbers, but it shows China Technology Industry Group had 40.3 million yen in debt in September 2021, up from 69.5 million yen a year earlier. On the other hand, he has 1.96 million yen in cash, resulting in a net debt of around 38.3 million yen.

SEHK: 8111 Debt to Equity History March 22, 2022

A look at the liabilities of the China Technology Industry Group

We can see from the most recent balance sheet that China Technology Industry Group had liabilities of 89.0 million yen due within one year, and liabilities of 25.9 million yen due beyond. In return, it had 1.96 million yen in cash and 191.7 million yen in debt due within 12 months. So he actually has 78.8 million Canadian yen Continued liquid assets than total liabilities.

This abundant liquidity means that China Technology Industry Group’s balance sheet is as strong as a giant redwood. With that in mind, one could argue that its track record means the company is capable of dealing with some adversity. When analyzing debt levels, the balance sheet is the obvious starting point. But it is the profits of China Technology Industry Group that will influence the balance sheet in the future. So, if you want to know more about its earnings, it might be worth checking out this graph of its long-term trend.

Year-on-year, China Technology Industry Group posted a loss in EBIT and saw its revenue drop to C$129 million, a decline of 44%. It makes us nervous, to say the least.

Caveat Emptor

Not only has China Technology Industry Group’s revenue dropped over the past twelve months, it has also produced negative earnings before interest and taxes (EBIT). Indeed, it lost a very considerable 33 million Canadian yen in terms of EBIT. That said, the balance sheet currently has plenty of cash. This will give the business time and space to grow and expand its business as needed. Although the stock is probably a little risky, there may be an opportunity if the company itself improves, allowing the company to stage a recovery. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. To do this, you need to find out about the 4 warning signs we spotted with China Technology Industry Group (including 1 that doesn’t suit us too much).

If you are interested in investing in businesses that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.