China CSSC Holdings (SHSE:600150) Has Debt But No Earnings; Should You Worry?

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 China CSSC Holdings Limited (SHSE:600150) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for China CSSC Holdings

What Is China CSSC Holdings's Debt?

As you can see below, China CSSC Holdings had CN¥15.3b of debt at September 2024, down from CN¥29.6b a year prior. However, it does have CN¥60.2b in cash offsetting this, leading to net cash of CN¥44.9b.

How Strong Is China CSSC Holdings' Balance Sheet?

The latest balance sheet data shows that China CSSC Holdings had liabilities of CN¥106.9b due within a year, and liabilities of CN¥17.8b falling due after that. Offsetting these obligations, it had cash of CN¥60.2b as well as receivables valued at CN¥14.2b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥50.4b.

While this might seem like a lot, it is not so bad since China CSSC Holdings has a huge market capitalization of CN¥161.3b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, China CSSC Holdings 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 China CSSC Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year China CSSC Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to CN¥81b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is China CSSC Holdings?

Although China CSSC Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥2.7b. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. For example - China CSSC Holdings has 2 warning signs we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.