Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Sprint Precision Technologies Co., Ltd. (SHSE:688605) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Sprint Precision Technologies Carry?

As you can see below, at the end of March 2025, Sprint Precision Technologies had CN¥93.7m of debt, up from CN¥30.0m a year ago. Click the image for more detail. But it also has CN¥657.5m in cash to offset that, meaning it has CN¥563.8m net cash.

How Strong Is Sprint Precision Technologies' Balance Sheet?

According to the last reported balance sheet, Sprint Precision Technologies had liabilities of CN¥380.3m due within 12 months, and liabilities of CN¥79.1m due beyond 12 months. On the other hand, it had cash of CN¥657.5m and CN¥507.1m worth of receivables due within a year. So it can boast CN¥705.3m more liquid assets than total liabilities.

This surplus suggests that Sprint Precision Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Sprint Precision Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Sprint Precision Technologies has boosted its EBIT by 96%, thus reducing the spectre of future debt repayments. 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 Sprint Precision Technologies 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Sprint Precision Technologies may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Sprint Precision Technologies recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Sprint Precision Technologies has net cash of CN¥563.8m, as well as more liquid assets than liabilities. And we liked the look of last year's 96% year-on-year EBIT growth. So is Sprint Precision Technologies's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Sprint Precision Technologies's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.