Jiangsu Nonghua Intelligent Agriculture Technologyltd (SZSE:000816) Has Debt But No Earnings; Should You Worry?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Jiangsu Nonghua Intelligent Agriculture Technology Co.ltd (SZSE:000816) does use debt in its business. But the more important question is: how much risk is that debt creating?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Jiangsu Nonghua Intelligent Agriculture Technologyltd

How Much Debt Does Jiangsu Nonghua Intelligent Agriculture Technologyltd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Jiangsu Nonghua Intelligent Agriculture Technologyltd had CN¥95.8m of debt, an increase on CN¥49.3m, over one year. However, its balance sheet shows it holds CN¥652.7m in cash, so it actually has CN¥556.9m net cash.

How Strong Is Jiangsu Nonghua Intelligent Agriculture Technologyltd's Balance Sheet?

We can see from the most recent balance sheet that Jiangsu Nonghua Intelligent Agriculture Technologyltd had liabilities of CN¥983.8m falling due within a year, and liabilities of CN¥124.6m due beyond that. On the other hand, it had cash of CN¥652.7m and CN¥276.8m worth of receivables due within a year. So its liabilities total CN¥178.9m more than the combination of its cash and short-term receivables.

Given Jiangsu Nonghua Intelligent Agriculture Technologyltd has a market capitalization of CN¥4.23b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Jiangsu Nonghua Intelligent Agriculture Technologyltd 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 Jiangsu Nonghua Intelligent Agriculture Technologyltd'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.

Over 12 months, Jiangsu Nonghua Intelligent Agriculture Technologyltd made a loss at the EBIT level, and saw its revenue drop to CN¥1.3b, which is a fall of 4.0%. That's not what we would hope to see.

So How Risky Is Jiangsu Nonghua Intelligent Agriculture Technologyltd?

Although Jiangsu Nonghua Intelligent Agriculture Technologyltd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥55m. 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. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Jiangsu Nonghua Intelligent Agriculture Technologyltd's profit, revenue, and operating cashflow have changed over the last few years.

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.