We Think BAIC BluePark New Energy TechnologyLtd (SHSE:600733) Has A Fair Chunk Of 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. Importantly, BAIC BluePark New Energy Technology Co.,Ltd. (SHSE:600733) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for BAIC BluePark New Energy TechnologyLtd

How Much Debt Does BAIC BluePark New Energy TechnologyLtd Carry?

The image below, which you can click on for greater detail, shows that BAIC BluePark New Energy TechnologyLtd had debt of CN¥12.0b at the end of March 2024, a reduction from CN¥13.8b over a year. However, it does have CN¥4.77b in cash offsetting this, leading to net debt of about CN¥7.24b.

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¥19.1b due within a year, and liabilities of CN¥4.54b falling due after that. On the other hand, it had cash of CN¥4.77b and CN¥6.20b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥12.6b.

While this might seem like a lot, it is not so bad since BAIC BluePark New Energy TechnologyLtd has a market capitalization of CN¥37.4b, 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 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, BAIC BluePark New Energy TechnologyLtd reported revenue of CN¥13b, which is a gain of 30%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, BAIC BluePark New Energy TechnologyLtd still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping CN¥5.3b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥2.5b of cash over the last year. So in short it's a really risky stock. 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. For instance, we've identified 3 warning signs for BAIC BluePark New Energy TechnologyLtd (1 can't be ignored) you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.