Is Anhui Jianghuai Automobile GroupLtd (SHSE:600418) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Anhui Jianghuai Automobile Group Corp.,Ltd. (SHSE:600418) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Anhui Jianghuai Automobile GroupLtd

What Is Anhui Jianghuai Automobile GroupLtd's Net Debt?

As you can see below, Anhui Jianghuai Automobile GroupLtd had CN¥6.99b of debt at September 2024, down from CN¥8.32b a year prior. But on the other hand it also has CN¥17.1b in cash, leading to a CN¥10.1b net cash position.

How Healthy Is Anhui Jianghuai Automobile GroupLtd's Balance Sheet?

The latest balance sheet data shows that Anhui Jianghuai Automobile GroupLtd had liabilities of CN¥28.5b due within a year, and liabilities of CN¥6.92b falling due after that. On the other hand, it had cash of CN¥17.1b and CN¥5.71b worth of receivables due within a year. So it has liabilities totalling CN¥12.6b more than its cash and near-term receivables, combined.

Given Anhui Jianghuai Automobile GroupLtd has a humongous market capitalization of CN¥86.2b, it's hard to believe these liabilities pose much 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, Anhui Jianghuai Automobile GroupLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Anhui Jianghuai Automobile GroupLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Anhui Jianghuai Automobile GroupLtd 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 Anhui Jianghuai Automobile GroupLtd?

While Anhui Jianghuai Automobile GroupLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥593m. 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. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Anhui Jianghuai Automobile GroupLtd 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.