Is Shanghai Aerospace Automobile Electromechanical (SHSE:600151) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Shanghai Aerospace Automobile Electromechanical Co., Ltd. (SHSE:600151) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Shanghai Aerospace Automobile Electromechanical

How Much Debt Does Shanghai Aerospace Automobile Electromechanical Carry?

You can click the graphic below for the historical numbers, but it shows that Shanghai Aerospace Automobile Electromechanical had CN¥1.32b of debt in September 2024, down from CN¥1.60b, one year before. But it also has CN¥1.38b in cash to offset that, meaning it has CN¥57.6m net cash.

A Look At Shanghai Aerospace Automobile Electromechanical's Liabilities

We can see from the most recent balance sheet that Shanghai Aerospace Automobile Electromechanical had liabilities of CN¥2.08b falling due within a year, and liabilities of CN¥1.28b due beyond that. On the other hand, it had cash of CN¥1.38b and CN¥1.91b worth of receivables due within a year. So it has liabilities totalling CN¥80.0m more than its cash and near-term receivables, combined.

This state of affairs indicates that Shanghai Aerospace Automobile Electromechanical's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥12.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Shanghai Aerospace Automobile Electromechanical boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Shanghai Aerospace Automobile Electromechanical's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Shanghai Aerospace Automobile Electromechanical had a loss before interest and tax, and actually shrunk its revenue by 46%, to CN¥5.7b. That makes us nervous, to say the least.

So How Risky Is Shanghai Aerospace Automobile Electromechanical?

While Shanghai Aerospace Automobile Electromechanical lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥361m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. For riskier companies like Shanghai Aerospace Automobile Electromechanical I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.