Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies NavInfo Co., Ltd. (SZSE:002405) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does NavInfo Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 NavInfo had CN¥731.3m of debt, an increase on CN¥407.8m, over one year. But it also has CN¥2.52b in cash to offset that, meaning it has CN¥1.79b net cash.

How Healthy Is NavInfo's Balance Sheet?

We can see from the most recent balance sheet that NavInfo had liabilities of CN¥1.93b falling due within a year, and liabilities of CN¥213.6m due beyond that. Offsetting this, it had CN¥2.52b in cash and CN¥987.4m in receivables that were due within 12 months. So it can boast CN¥1.36b more liquid assets than total liabilities.

This short term liquidity is a sign that NavInfo could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, NavInfo 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 future earnings, more than anything, that will determine NavInfo's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, NavInfo reported revenue of CN¥3.6b, which is a gain of 14%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is NavInfo?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months NavInfo lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥424m of cash and made a loss of CN¥1.1b. But the saving grace is the CN¥1.79b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for NavInfo 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.