Does Guangzhou Guangri StockLtd (SHSE:600894) Have A Healthy Balance Sheet?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Guangzhou Guangri Stock Co.,Ltd. (SHSE:600894) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

Check out our latest analysis for Guangzhou Guangri StockLtd

What Is Guangzhou Guangri StockLtd's Net Debt?

As you can see below, at the end of March 2024, Guangzhou Guangri StockLtd had CN¥56.0m of debt, up from CN¥37.9m a year ago. Click the image for more detail. However, it does have CN¥5.03b in cash offsetting this, leading to net cash of CN¥4.97b.

How Strong Is Guangzhou Guangri StockLtd's Balance Sheet?

We can see from the most recent balance sheet that Guangzhou Guangri StockLtd had liabilities of CN¥4.54b falling due within a year, and liabilities of CN¥178.9m due beyond that. Offsetting this, it had CN¥5.03b in cash and CN¥2.15b in receivables that were due within 12 months. So it can boast CN¥2.45b more liquid assets than total liabilities.

It's good to see that Guangzhou Guangri StockLtd has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Guangzhou Guangri StockLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Guangzhou Guangri StockLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Guangzhou Guangri StockLtd reported revenue of CN¥7.4b, which is a gain of 9.4%, 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 Guangzhou Guangri StockLtd?

Although Guangzhou Guangri StockLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥738m. 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. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. Case in point: We've spotted 1 warning sign for Guangzhou Guangri StockLtd you should be aware of.

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.