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.' 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. We note that National Silicon Industry Group Co., Ltd. (SHSE:688126) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, 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.

Check out our latest analysis for National Silicon Industry Group

How Much Debt Does National Silicon Industry Group Carry?

As you can see below, at the end of September 2023, National Silicon Industry Group had CN¥3.16b of debt, up from CN¥2.79b a year ago. Click the image for more detail. But it also has CN¥6.00b in cash to offset that, meaning it has CN¥2.84b net cash.

A Look At National Silicon Industry Group's Liabilities

According to the last reported balance sheet, National Silicon Industry Group had liabilities of CN¥2.12b due within 12 months, and liabilities of CN¥4.31b due beyond 12 months. On the other hand, it had cash of CN¥6.00b and CN¥747.1m worth of receivables due within a year. So it can boast CN¥325.5m more liquid assets than total liabilities.

Having regard to National Silicon Industry Group's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥50.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that National Silicon Industry Group has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine National Silicon Industry Group'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.

In the last year National Silicon Industry Group wasn't profitable at an EBIT level, but managed to grow its revenue by 3.0%, to CN¥3.4b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is National Silicon Industry Group?

While National Silicon Industry Group lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥412m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. For instance, we've identified 1 warning sign for National Silicon Industry Group that you should be aware of.

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.