We Think Shenyang Blue Silver Industry Automation Equipment (SZSE:300293) Has A Fair Chunk Of Debt

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.' 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. As with many other companies Shenyang Blue Silver Industry Automation Equipment Co., Ltd (SZSE:300293) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Shenyang Blue Silver Industry Automation Equipment

What Is Shenyang Blue Silver Industry Automation Equipment's Debt?

The image below, which you can click on for greater detail, shows that Shenyang Blue Silver Industry Automation Equipment had debt of CN¥351.4m at the end of March 2024, a reduction from CN¥375.8m over a year. On the flip side, it has CN¥133.6m in cash leading to net debt of about CN¥217.7m.

How Strong Is Shenyang Blue Silver Industry Automation Equipment's Balance Sheet?

The latest balance sheet data shows that Shenyang Blue Silver Industry Automation Equipment had liabilities of CN¥805.0m due within a year, and liabilities of CN¥362.9m falling due after that. Offsetting this, it had CN¥133.6m in cash and CN¥462.2m in receivables that were due within 12 months. So its liabilities total CN¥572.0m more than the combination of its cash and short-term receivables.

Of course, Shenyang Blue Silver Industry Automation Equipment has a market capitalization of CN¥4.80b, 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. There's no doubt that we learn most about debt from the balance sheet. But it is Shenyang Blue Silver Industry Automation Equipment'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.

Over 12 months, Shenyang Blue Silver Industry Automation Equipment reported revenue of CN¥1.4b, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Shenyang Blue Silver Industry Automation Equipment had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥24m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥33m of cash over the last year. So to be blunt we think it is risky. 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. For example - Shenyang Blue Silver Industry Automation Equipment 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.