David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Net-a-Go Technology Company Limited (HKG:1483) makes use of debt. But should shareholders be worried about its use of debt?
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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Net-a-Go Technology
What Is Net-a-Go Technology's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2024 Net-a-Go Technology had HK$114.5m of debt, an increase on none, over one year. However, it does have HK$426.2m in cash offsetting this, leading to net cash of HK$311.7m.
A Look At Net-a-Go Technology's Liabilities
We can see from the most recent balance sheet that Net-a-Go Technology had liabilities of HK$300.7m falling due within a year, and liabilities of HK$20.4m due beyond that. Offsetting this, it had HK$426.2m in cash and HK$172.5m in receivables that were due within 12 months. So it actually has HK$277.6m more liquid assets than total liabilities.
This surplus liquidity suggests that Net-a-Go Technology's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Net-a-Go Technology boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Net-a-Go Technology'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.
In the last year Net-a-Go Technology had a loss before interest and tax, and actually shrunk its revenue by 11%, to HK$208m. That's not what we would hope to see.
So How Risky Is Net-a-Go Technology?
Although Net-a-Go Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of HK$19m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Net-a-Go Technology you should know about.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.