Does Shenyang Jinbei Automotive (SHSE:600609) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Shenyang Jinbei Automotive Company Limited (SHSE:600609) does carry debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Shenyang Jinbei Automotive

What Is Shenyang Jinbei Automotive's Debt?

The image below, which you can click on for greater detail, shows that Shenyang Jinbei Automotive had debt of CN¥421.3m at the end of September 2024, a reduction from CN¥690.3m over a year. But it also has CN¥2.23b in cash to offset that, meaning it has CN¥1.81b net cash.

How Strong Is Shenyang Jinbei Automotive's Balance Sheet?

The latest balance sheet data shows that Shenyang Jinbei Automotive had liabilities of CN¥2.48b due within a year, and liabilities of CN¥154.3m falling due after that. Offsetting this, it had CN¥2.23b in cash and CN¥153.7m in receivables that were due within 12 months. So its liabilities total CN¥249.1m more than the combination of its cash and short-term receivables.

Given Shenyang Jinbei Automotive has a market capitalization of CN¥8.85b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Shenyang Jinbei Automotive also has more cash than debt, so we're pretty confident it can manage its debt safely.

While Shenyang Jinbei Automotive doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Shenyang Jinbei Automotive will need earnings to service that debt. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Shenyang Jinbei Automotive may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Shenyang Jinbei Automotive actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Shenyang Jinbei Automotive's liabilities, but we can be reassured by the fact it has has net cash of CN¥1.81b. And it impressed us with free cash flow of CN¥921m, being 205% of its EBIT. So is Shenyang Jinbei Automotive's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Shenyang Jinbei Automotive's earnings per share history for free.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.