Does BAIC BluePark New Energy TechnologyLtd (SHSE:600733) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, BAIC BluePark New Energy Technology Co.,Ltd. (SHSE:600733) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for BAIC BluePark New Energy TechnologyLtd

What Is BAIC BluePark New Energy TechnologyLtd's Debt?

As you can see below, BAIC BluePark New Energy TechnologyLtd had CN¥11.8b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of CN¥2.30b, its net debt is less, at about CN¥9.52b.

A Look At BAIC BluePark New Energy TechnologyLtd's Liabilities

The latest balance sheet data shows that BAIC BluePark New Energy TechnologyLtd had liabilities of CN¥21.0b due within a year, and liabilities of CN¥4.13b falling due after that. Offsetting this, it had CN¥2.30b in cash and CN¥7.55b in receivables that were due within 12 months. So it has liabilities totalling CN¥15.3b more than its cash and near-term receivables, combined.

BAIC BluePark New Energy TechnologyLtd has a market capitalization of CN¥41.1b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 BAIC BluePark New Energy TechnologyLtd 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.

In the last year BAIC BluePark New Energy TechnologyLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 4.1%, to CN¥12b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, BAIC BluePark New Energy TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CN¥5.3b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥3.5b of cash over the last year. So suffice it to say we consider the stock very risky. 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 1 warning sign for BAIC BluePark New Energy TechnologyLtd you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.