Does Hunan Corun New Energy (SHSE:600478) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Hunan Corun New Energy Co., Ltd. (SHSE:600478) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Hunan Corun New Energy's Debt?

As you can see below, Hunan Corun New Energy had CN¥3.19b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have CN¥1.81b in cash offsetting this, leading to net debt of about CN¥1.38b.

How Strong Is Hunan Corun New Energy's Balance Sheet?

The latest balance sheet data shows that Hunan Corun New Energy had liabilities of CN¥4.03b due within a year, and liabilities of CN¥1.97b falling due after that. Offsetting these obligations, it had cash of CN¥1.81b as well as receivables valued at CN¥597.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥3.59b.

While this might seem like a lot, it is not so bad since Hunan Corun New Energy has a market capitalization of CN¥8.74b, 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 Hunan Corun New Energy's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Hunan Corun New Energy

Over 12 months, Hunan Corun New Energy made a loss at the EBIT level, and saw its revenue drop to CN¥3.8b, which is a fall of 3.0%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Hunan Corun New Energy produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥5.8m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of CN¥73m. So to be blunt we do 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. Be aware that Hunan Corun New Energy is showing 1 warning sign in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.