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 can see that Saturday Co.,Ltd (SZSE:002291) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for SaturdayLtd

What Is SaturdayLtd's Debt?

The image below, which you can click on for greater detail, shows that SaturdayLtd had debt of CN¥735.9m at the end of June 2022, a reduction from CN¥1.45b over a year. However, it does have CN¥1.54b in cash offsetting this, leading to net cash of CN¥803.0m.

How Healthy Is SaturdayLtd's Balance Sheet?

According to the last reported balance sheet, SaturdayLtd had liabilities of CN¥1.58b due within 12 months, and liabilities of CN¥66.9m due beyond 12 months. On the other hand, it had cash of CN¥1.54b and CN¥1.42b worth of receivables due within a year. So it can boast CN¥1.31b more liquid assets than total liabilities.

This surplus suggests that SaturdayLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, SaturdayLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if SaturdayLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year SaturdayLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 60%, to CN¥3.6b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is SaturdayLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that SaturdayLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥460m of cash and made a loss of CN¥530m. With only CN¥803.0m on the balance sheet, it would appear that its going to need to raise capital again soon. SaturdayLtd's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for SaturdayLtd that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.