Is Jiangsu Gian Technology (SZSE:300709) A Risky Investment?

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. Importantly, Jiangsu Gian Technology Co., Ltd. (SZSE:300709) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Jiangsu Gian Technology

How Much Debt Does Jiangsu Gian Technology Carry?

You can click the graphic below for the historical numbers, but it shows that Jiangsu Gian Technology had CN¥317.7m of debt in September 2023, down from CN¥351.7m, one year before. But it also has CN¥593.9m in cash to offset that, meaning it has CN¥276.2m net cash.

How Strong Is Jiangsu Gian Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jiangsu Gian Technology had liabilities of CN¥1.14b due within 12 months and liabilities of CN¥124.1m due beyond that. On the other hand, it had cash of CN¥593.9m and CN¥686.9m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Jiangsu Gian Technology's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥6.03b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Jiangsu Gian Technology boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Jiangsu Gian Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Jiangsu Gian Technology had a loss before interest and tax, and actually shrunk its revenue by 19%, to CN¥2.2b. We would much prefer see growth.

So How Risky Is Jiangsu Gian Technology?

While Jiangsu Gian Technology lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥276m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. Case in point: We've spotted 1 warning sign for Jiangsu Gian Technology you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.