Does Qinchuan Machine Tool & Tool Group Share (SZSE:000837) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Qinchuan Machine Tool & Tool Group Share Co., Ltd. (SZSE:000837) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Qinchuan Machine Tool & Tool Group Share

What Is Qinchuan Machine Tool & Tool Group Share's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Qinchuan Machine Tool & Tool Group Share had CN¥1.03b of debt in March 2024, down from CN¥1.30b, one year before. But it also has CN¥1.85b in cash to offset that, meaning it has CN¥819.7m net cash.

How Strong Is Qinchuan Machine Tool & Tool Group Share's Balance Sheet?

We can see from the most recent balance sheet that Qinchuan Machine Tool & Tool Group Share had liabilities of CN¥3.28b falling due within a year, and liabilities of CN¥1.06b due beyond that. Offsetting this, it had CN¥1.85b in cash and CN¥1.69b in receivables that were due within 12 months. So its liabilities total CN¥791.5m more than the combination of its cash and short-term receivables.

Of course, Qinchuan Machine Tool & Tool Group Share has a market capitalization of CN¥7.95b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Qinchuan Machine Tool & Tool Group Share boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Qinchuan Machine Tool & Tool Group Share'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 Qinchuan Machine Tool & Tool Group Share had a loss before interest and tax, and actually shrunk its revenue by 6.4%, to CN¥3.7b. We would much prefer see growth.

So How Risky Is Qinchuan Machine Tool & Tool Group Share?

Although Qinchuan Machine Tool & Tool Group Share had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥20m. 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. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Qinchuan Machine Tool & Tool Group Share that you should be aware of.

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.

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