David Iben put it well when he declared, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ 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. Importantly, AviChina Indusattempt & Technology Company Limited (HKG:2357) does carry debt. But the real question is whether this debt is creating the company risky.
When Is Debt A Problem?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 toobtainher.
What Is AviChina Indusattempt & Technology’s Debt?
You can click the graphic below for the historical numbers, but it displays that as of June 2025 AviChina Indusattempt & Technology had CN¥18.9b of debt, an increase on CN¥16.8b, over one year. However, its balance sheet displays it holds CN¥34.7b in cash, so it actually has CN¥15.8b net cash.
A Look At AviChina Indusattempt & Technology’s Liabilities
The latest balance sheet data displays that AviChina Indusattempt & Technology had liabilities of CN¥93.7b due within a year, and liabilities of CN¥8.05b falling due after that. On the other hand, it had cash of CN¥34.7b and CN¥71.9b worth of receivables due within a year. So it actually has CN¥4.82b more liquid assets than total liabilities.
It’s good to see that AviChina Indusattempt & Technology has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lconcludeers. Simply put, the fact that AviChina Indusattempt & Technology has more cash than debt is arguably a good indication that it can manage its debt safely.
Check out our latest analysis for AviChina Indusattempt & Technology
But the bad news is that AviChina Indusattempt & Technology has seen its EBIT plunge 19% in the last twelve months. We believe hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine AviChina Indusattempt & Technology’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals believe, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business necessarys free cash flow to pay off debt; accounting profits just don’t cut it. AviChina Indusattempt & Technology may have net cash on the balance sheet, but it is still interesting to see at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, becautilize that will influence both its necessary for, and its capacity to manage debt. Over the last three years, AviChina Indusattempt & Technology 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 expconcludeiture 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 AviChina Indusattempt & Technology has net cash of CN¥15.8b, as well as more liquid assets than liabilities. So we are not troubled with AviChina Indusattempt & Technology’s debt utilize. Over time, share prices tconclude to follow earnings per share, so if you’re interested in AviChina Indusattempt & Technology, you may well want to click here to check an interactive graph of its earnings per share history.
When all is declared and done, sometimes its clearer to focus on companies that don’t even necessary debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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 utilizing an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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