Would Shenyang Blue Silver Industry Automation Equipment (SZSE:300293) Be Better Off With Less Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that Shenyang Blue Silver Industry Automation Equipment Co., Ltd (SZSE:300293) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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. 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.

How Much Debt Does Shenyang Blue Silver Industry Automation Equipment Carry?

You can click the graphic below for the historical numbers, but it shows that Shenyang Blue Silver Industry Automation Equipment had CN¥466.2m of debt in September 2024, down from CN¥521.3m, one year before. On the flip side, it has CN¥132.4m in cash leading to net debt of about CN¥333.8m.

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

According to the last reported balance sheet, Shenyang Blue Silver Industry Automation Equipment had liabilities of CN¥776.0m due within 12 months, and liabilities of CN¥351.0m due beyond 12 months. On the other hand, it had cash of CN¥132.4m and CN¥493.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥500.9m.

Since publicly traded Shenyang Blue Silver Industry Automation Equipment shares are worth a total of CN¥7.69b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Shenyang Blue Silver Industry Automation Equipment will need earnings to service that debt. 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.

See our latest analysis for Shenyang Blue Silver Industry Automation Equipment

In the last year Shenyang Blue Silver Industry Automation Equipment had a loss before interest and tax, and actually shrunk its revenue by 15%, to CN¥1.3b. That's not what we would hope to see.

Caveat Emptor

While Shenyang Blue Silver Industry Automation Equipment'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¥7.4m 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¥19m into a profit. So to be blunt we do think it is risky. For riskier companies like Shenyang Blue Silver Industry Automation Equipment I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.