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Legendary fund manager Li Lu once said that the biggest investment risk is not the volatility of prices, but the potential for a permanent loss of capital. When considering a company’s risk factor, it’s important to assess its balance sheet and debt levels. CloudWalk Technology Co., Ltd. carries debt, but the key question is whether this debt poses a significant risk to the company.
Debt becomes a problem when a company struggles to repay it, potentially leading to shareholder losses. However, debt can also be a useful tool for capital-heavy businesses. CloudWalk Technology had a debt of CN¥606.3m at the end of March 2024, but also held CN¥1.31b in cash, resulting in net cash of CN¥701.7m. The company’s balance sheet shows it has more liquid assets than total liabilities, indicating it can likely pay off its debt comfortably.
While CloudWalk Technology was not profitable at an EBIT level in the last year, it managed to increase its revenue by 78%. The company does have net cash of CN¥701.7m, which provides a buffer. Its revenue growth suggests the potential for future profitability. Ultimately, the focus should be on long-term profit and revenue trends to gauge the company’s risk level.
Despite the risks associated with a loss-making company, CloudWalk Technology’s financial health and revenue growth indicate potential for future profitability. It is important to consider all factors when assessing a company’s risk level and potential for growth.
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Photo credit simplywall.st
