Is Shanghai Aerospace Automobile Electromechanical (SHSE:600151) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Shanghai Aerospace Automobile Electromechanical Co., Ltd. (SHSE:600151) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

See our latest analysis for Shanghai Aerospace Automobile Electromechanical

What Is Shanghai Aerospace Automobile Electromechanical's Net Debt?

The image below, which you can click on for greater detail, shows that Shanghai Aerospace Automobile Electromechanical had debt of CN¥1.26b at the end of December 2024, a reduction from CN¥1.33b over a year. But on the other hand it also has CN¥1.28b in cash, leading to a CN¥15.5m net cash position.

How Strong Is Shanghai Aerospace Automobile Electromechanical's Balance Sheet?

We can see from the most recent balance sheet that Shanghai Aerospace Automobile Electromechanical had liabilities of CN¥1.83b falling due within a year, and liabilities of CN¥1.21b due beyond that. Offsetting this, it had CN¥1.28b in cash and CN¥1.85b in receivables that were due within 12 months. So it can boast CN¥95.7m more liquid assets than total liabilities.

Having regard to Shanghai Aerospace Automobile Electromechanical's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥11.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Shanghai Aerospace Automobile Electromechanical has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Over 12 months, Shanghai Aerospace Automobile Electromechanical made a loss at the EBIT level, and saw its revenue drop to CN¥5.3b, which is a fall of 42%. To be frank that doesn't bode well.

So How Risky Is Shanghai Aerospace Automobile Electromechanical?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Shanghai Aerospace Automobile Electromechanical had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥320m and booked a CN¥71m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥15.5m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.