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

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Guangzhou Guangri Stock Co.,Ltd. (SHSE:600894) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Guangzhou Guangri StockLtd's Net Debt?

The image below, which you can click on for greater detail, shows that Guangzhou Guangri StockLtd had debt of CN¥19.6m at the end of September 2024, a reduction from CN¥64.7m over a year. But it also has CN¥4.79b in cash to offset that, meaning it has CN¥4.77b net cash.

How Healthy Is Guangzhou Guangri StockLtd's Balance Sheet?

We can see from the most recent balance sheet that Guangzhou Guangri StockLtd had liabilities of CN¥5.62b falling due within a year, and liabilities of CN¥171.4m due beyond that. Offsetting these obligations, it had cash of CN¥4.79b as well as receivables valued at CN¥2.73b due within 12 months. So it can boast CN¥1.73b 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. Succinctly put, Guangzhou Guangri StockLtd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Guangzhou Guangri StockLtd'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.

View our latest analysis for Guangzhou Guangri StockLtd

In the last year Guangzhou Guangri StockLtd's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Guangzhou Guangri StockLtd?

While Guangzhou Guangri StockLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥807m. 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 mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. To that end, you should be aware of the 1 warning sign we've spotted with Guangzhou Guangri StockLtd .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.