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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Shenzhen Fastprint Circuit Tech Co.,Ltd. (SZSE:002436) does carry debt. But is this debt a concern to shareholders?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 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 Shenzhen Fastprint Circuit TechLtd

How Much Debt Does Shenzhen Fastprint Circuit TechLtd Carry?

As you can see below, at the end of September 2023, Shenzhen Fastprint Circuit TechLtd had CN¥4.04b of debt, up from CN¥3.09b a year ago. Click the image for more detail. However, it does have CN¥2.49b in cash offsetting this, leading to net debt of about CN¥1.55b.

A Look At Shenzhen Fastprint Circuit TechLtd's Liabilities

We can see from the most recent balance sheet that Shenzhen Fastprint Circuit TechLtd had liabilities of CN¥3.47b falling due within a year, and liabilities of CN¥3.15b due beyond that. On the other hand, it had cash of CN¥2.49b and CN¥2.37b worth of receivables due within a year. So its liabilities total CN¥1.76b more than the combination of its cash and short-term receivables.

Since publicly traded Shenzhen Fastprint Circuit TechLtd shares are worth a total of CN¥25.9b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Shenzhen Fastprint Circuit TechLtd's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Shenzhen Fastprint Circuit TechLtd made a loss at the EBIT level, and saw its revenue drop to CN¥5.2b, which is a fall of 5.2%. We would much prefer see growth.

Caveat Emptor

Importantly, Shenzhen Fastprint Circuit TechLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥35m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.7b in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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 example Shenzhen Fastprint Circuit TechLtd has 3 warning signs (and 1 which shouldn't be ignored) we think 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.