Here's Why BAIC BluePark New Energy TechnologyLtd (SHSE:600733) Can Afford Some Debt

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 can see that BAIC BluePark New Energy Technology Co.,Ltd. (SHSE:600733) does use debt in its business. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Net Debt?

As you can see below, BAIC BluePark New Energy TechnologyLtd had CN¥12.4b of debt, at September 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¥3.72b, its net debt is less, at about CN¥8.66b.

How Healthy Is BAIC BluePark New Energy TechnologyLtd's Balance Sheet?

According to the last reported balance sheet, BAIC BluePark New Energy TechnologyLtd had liabilities of CN¥23.1b due within 12 months, and liabilities of CN¥7.22b due beyond 12 months. Offsetting these obligations, it had cash of CN¥3.72b as well as receivables valued at CN¥9.00b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥17.6b.

While this might seem like a lot, it is not so bad since BAIC BluePark New Energy TechnologyLtd has a market capitalization of CN¥44.8b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine BAIC BluePark New Energy TechnologyLtd's ability to maintain a healthy balance sheet going forward. 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, BAIC BluePark New Energy TechnologyLtd reported revenue of CN¥15b, which is a gain of 13%, although it did not report any earnings before interest and tax. 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¥6.0b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.5b in negative free cash flow over the last twelve months. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with BAIC BluePark New Energy TechnologyLtd .

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.

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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.