Does Guangdong Jiayuan TechnologyLtd (SHSE:688388) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We note that Guangdong Jiayuan Technology Co.,Ltd. (SHSE:688388) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

Check out our latest analysis for Guangdong Jiayuan TechnologyLtd

What Is Guangdong Jiayuan TechnologyLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Guangdong Jiayuan TechnologyLtd had CN¥4.05b of debt, an increase on CN¥2.30b, over one year. However, it also had CN¥2.05b in cash, and so its net debt is CN¥2.01b.

How Healthy Is Guangdong Jiayuan TechnologyLtd's Balance Sheet?

We can see from the most recent balance sheet that Guangdong Jiayuan TechnologyLtd had liabilities of CN¥1.87b falling due within a year, and liabilities of CN¥3.53b due beyond that. Offsetting this, it had CN¥2.05b in cash and CN¥1.74b in receivables that were due within 12 months. So its liabilities total CN¥1.62b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Guangdong Jiayuan TechnologyLtd is worth CN¥5.55b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Guangdong Jiayuan TechnologyLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Guangdong Jiayuan TechnologyLtd reported revenue of CN¥5.3b, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Guangdong Jiayuan TechnologyLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥87m. 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. Another cause for caution is that is bled CN¥1.7b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Guangdong Jiayuan TechnologyLtd you should know about.

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.