Warren Buffett famously said, ❟latility 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 ACM Research (Shanghai), Inc. () does have debt on its balance sheet. But should shareholders be worried about its use of debt?
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. Part and parcel of capitalism is the process of ❌eative destruction✩here failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
As you can see below, at the end of September 2024, ACM Research (Shanghai) had CN¥1.11b of debt, up from CN¥597.1m a year ago. Click the image for more detail. But on the other hand it also has CN¥2.15b in cash, leading to a CN¥1.04b net cash position.
The latest balance sheet data shows that ACM Research (Shanghai) had liabilities of CN¥3.40b due within a year, and liabilities of CN¥779.4m falling due after that. Offsetting these obligations, it had cash of CN¥2.15b as well as receivables valued at CN¥2.15b due within 12 months上海养生网. So it actually has CN¥112.0m more liquid assets than total liabilities.
This state of affairs indicates that ACM Research (Shanghai)❼balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets爱上海同城论坛. So while it❼hard to imagine that the CN¥43.7b company is struggling for cash, we still think it❼worth monitoring its balance sheet. Succinctly put, ACM Research (Shanghai) boasts net cash, so it❼fair to say it does not have a heavy debt load!
And we also note warmly that ACM Research (Shanghai) grew its EBIT by 12% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ACM Research (Shanghai) can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits爱上海后花园. While ACM Research (Shanghai) has net cash on its balance sheet, it❼still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, ACM Research (Shanghai) burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.
While we empathize with investors who find debt concerning, you should keep in mind that ACM Research (Shanghai) has net cash of CN¥1.04b, as well as more liquid assets than liabilities. And it also grew its EBIT by 12% over the last year. So we are not troubled with ACM Research (Shanghai)❼debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. , and understanding them should be part of your investment process.
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