Is Beijing Jingwei Hirain Technologies (SHSE:688326) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Beijing Jingwei Hirain Technologies Co., Inc. (SHSE:688326) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Beijing Jingwei Hirain Technologies

What Is Beijing Jingwei Hirain Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Beijing Jingwei Hirain Technologies had CN¥541.4m of debt, an increase on CN¥38.4m, over one year. However, it does have CN¥2.51b in cash offsetting this, leading to net cash of CN¥1.97b.

A Look At Beijing Jingwei Hirain Technologies' Liabilities

According to the last reported balance sheet, Beijing Jingwei Hirain Technologies had liabilities of CN¥3.91b due within 12 months, and liabilities of CN¥492.0m due beyond 12 months. On the other hand, it had cash of CN¥2.51b and CN¥1.57b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥316.1m.

Of course, Beijing Jingwei Hirain Technologies has a market capitalization of CN¥7.75b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Beijing Jingwei Hirain Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Beijing Jingwei Hirain Technologies'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, Beijing Jingwei Hirain Technologies reported revenue of CN¥4.8b, which is a gain of 19%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Beijing Jingwei Hirain Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Beijing Jingwei Hirain Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥1.1b and booked a CN¥321m accounting loss. Given it only has net cash of CN¥1.97b, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. For riskier companies like Beijing Jingwei Hirain Technologies I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

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