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.' 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. We note that Geovis Technology Co.,Ltd (SHSE:688568) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Geovis TechnologyLtd Carry?

The image below, which you can click on for greater detail, shows that at September 2023 Geovis TechnologyLtd had debt of CN¥367.8m, up from CN¥14.1m in one year. But it also has CN¥1.60b in cash to offset that, meaning it has CN¥1.24b net cash.

How Strong Is Geovis TechnologyLtd's Balance Sheet?

According to the last reported balance sheet, Geovis TechnologyLtd had liabilities of CN¥1.73b due within 12 months, and liabilities of CN¥121.5m due beyond 12 months. Offsetting this, it had CN¥1.60b in cash and CN¥2.12b in receivables that were due within 12 months. So it can boast CN¥1.87b more liquid assets than total liabilities.

This short term liquidity is a sign that Geovis TechnologyLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Geovis TechnologyLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, Geovis TechnologyLtd grew its EBIT by 104% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. 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 Geovis TechnologyLtd'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Geovis TechnologyLtd 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. During the last three years, Geovis TechnologyLtd burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Geovis TechnologyLtd has CN¥1.24b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 104% over the last year. So we are not troubled with Geovis TechnologyLtd's debt use. 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 Geovis TechnologyLtd's earnings per share history for free.

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.