Is Harbin Dongan Auto EngineLtd (SHSE:600178) Using Debt Sensibly?

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 Harbin Dongan Auto Engine Co.,Ltd (SHSE:600178) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

View our latest analysis for Harbin Dongan Auto EngineLtd

What Is Harbin Dongan Auto EngineLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Harbin Dongan Auto EngineLtd had CN¥256.1m of debt in March 2024, down from CN¥340.2m, one year before. However, its balance sheet shows it holds CN¥1.71b in cash, so it actually has CN¥1.46b net cash.

How Strong Is Harbin Dongan Auto EngineLtd's Balance Sheet?

According to the last reported balance sheet, Harbin Dongan Auto EngineLtd had liabilities of CN¥4.17b due within 12 months, and liabilities of CN¥133.5m due beyond 12 months. Offsetting this, it had CN¥1.71b in cash and CN¥2.01b in receivables that were due within 12 months. So it has liabilities totalling CN¥584.7m more than its cash and near-term receivables, combined.

Since publicly traded Harbin Dongan Auto EngineLtd shares are worth a total of CN¥4.30b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Harbin Dongan Auto EngineLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Harbin Dongan Auto EngineLtd'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, Harbin Dongan Auto EngineLtd saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is Harbin Dongan Auto EngineLtd?

Although Harbin Dongan Auto EngineLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥8.2m. So taking that on face value, and considering the cash, we don't think its very 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Harbin Dongan Auto EngineLtd (of which 1 is potentially serious!) you should know about.

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.