Xingmin Intelligent Transportation Systems (Group) (SZSE:002355) Is Carrying A Fair Bit Of Debt

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. As with many other companies Xingmin Intelligent Transportation Systems (Group) Co., Ltd. (SZSE:002355) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Xingmin Intelligent Transportation Systems (Group)

How Much Debt Does Xingmin Intelligent Transportation Systems (Group) Carry?

You can click the graphic below for the historical numbers, but it shows that Xingmin Intelligent Transportation Systems (Group) had CN¥463.4m of debt in September 2024, down from CN¥613.1m, one year before. However, it also had CN¥100.4m in cash, and so its net debt is CN¥363.0m.

How Strong Is Xingmin Intelligent Transportation Systems (Group)'s Balance Sheet?

The latest balance sheet data shows that Xingmin Intelligent Transportation Systems (Group) had liabilities of CN¥1.02b due within a year, and liabilities of CN¥213.9m falling due after that. Offsetting these obligations, it had cash of CN¥100.4m as well as receivables valued at CN¥181.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥953.7m.

Since publicly traded Xingmin Intelligent Transportation Systems (Group) shares are worth a total of CN¥5.05b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But it is Xingmin Intelligent Transportation Systems (Group)'s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Xingmin Intelligent Transportation Systems (Group) saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, Xingmin Intelligent Transportation Systems (Group) had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥136m 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. We would feel better if it turned its trailing twelve month loss of CN¥18m into a profit. So to be blunt we do think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Xingmin Intelligent Transportation Systems (Group) is showing 1 warning sign in our investment analysis , you should know about...

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.