Here's Why Jiangsu Boamax Technologies GroupLtd (SZSE:002514) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Jiangsu Boamax Technologies Group Co.,Ltd. (SZSE:002514) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Jiangsu Boamax Technologies GroupLtd

What Is Jiangsu Boamax Technologies GroupLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Jiangsu Boamax Technologies GroupLtd had CN¥615.3m of debt, an increase on CN¥539.4m, over one year. On the flip side, it has CN¥38.8m in cash leading to net debt of about CN¥576.6m.

How Healthy Is Jiangsu Boamax Technologies GroupLtd's Balance Sheet?

According to the last reported balance sheet, Jiangsu Boamax Technologies GroupLtd had liabilities of CN¥1.27b due within 12 months, and liabilities of CN¥413.9m due beyond 12 months. Offsetting these obligations, it had cash of CN¥38.8m as well as receivables valued at CN¥431.7m due within 12 months. So it has liabilities totalling CN¥1.22b more than its cash and near-term receivables, combined.

Given Jiangsu Boamax Technologies GroupLtd has a market capitalization of CN¥6.17b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jiangsu Boamax Technologies GroupLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Jiangsu Boamax Technologies GroupLtd had a loss before interest and tax, and actually shrunk its revenue by 52%, to CN¥314m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Jiangsu Boamax Technologies GroupLtd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CN¥207m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of CN¥320m into a profit. So to be blunt we do think it is risky. 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 example - Jiangsu Boamax Technologies GroupLtd has 2 warning signs we think you should be aware of.

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.