Is China National Complete Plant Import & Export (SZSE:000151) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that China National Complete Plant Import & Export Corporation Limited (SZSE:000151) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for China National Complete Plant Import & Export

What Is China National Complete Plant Import & Export's Debt?

The image below, which you can click on for greater detail, shows that China National Complete Plant Import & Export had debt of CN¥943.0m at the end of March 2024, a reduction from CN¥1.17b over a year. However, it does have CN¥1.27b in cash offsetting this, leading to net cash of CN¥325.1m.

How Healthy Is China National Complete Plant Import & Export's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that China National Complete Plant Import & Export had liabilities of CN¥2.42b due within 12 months and liabilities of CN¥104.9m due beyond that. On the other hand, it had cash of CN¥1.27b and CN¥995.4m worth of receivables due within a year. So it has liabilities totalling CN¥262.5m more than its cash and near-term receivables, combined.

Given China National Complete Plant Import & Export has a market capitalization of CN¥3.83b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, China National Complete Plant Import & Export boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is China National Complete Plant Import & Export'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.

In the last year China National Complete Plant Import & Export had a loss before interest and tax, and actually shrunk its revenue by 51%, to CN¥2.4b. To be frank that doesn't bode well.

So How Risky Is China National Complete Plant Import & Export?

While China National Complete Plant Import & Export lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥357m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for China National Complete Plant Import & Export 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.

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