Is YaGuang Technology Group (SZSE:300123) Using Too Much Debt?

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. We note that YaGuang Technology Group Company Limited (SZSE:300123) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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. 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 YaGuang Technology Group

How Much Debt Does YaGuang Technology Group Carry?

As you can see below, YaGuang Technology Group had CN¥1.76b of debt at September 2024, down from CN¥1.85b a year prior. However, it does have CN¥265.7m in cash offsetting this, leading to net debt of about CN¥1.49b.

A Look At YaGuang Technology Group's Liabilities

We can see from the most recent balance sheet that YaGuang Technology Group had liabilities of CN¥2.90b falling due within a year, and liabilities of CN¥502.7m due beyond that. Offsetting these obligations, it had cash of CN¥265.7m as well as receivables valued at CN¥2.02b due within 12 months. So its liabilities total CN¥1.11b more than the combination of its cash and short-term receivables.

Of course, YaGuang Technology Group has a market capitalization of CN¥5.95b, so these liabilities are probably manageable. 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 YaGuang Technology Group'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, YaGuang Technology Group made a loss at the EBIT level, and saw its revenue drop to CN¥1.2b, which is a fall of 32%. To be frank that doesn't bode well.

Caveat Emptor

While YaGuang Technology Group's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost CN¥97m at the EBIT level. 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. For example, we would not want to see a repeat of last year's loss of CN¥371m. In the meantime, 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. For example, we've discovered 1 warning sign for YaGuang Technology Group that you should be aware of before investing here.

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.