Does Fujian Tendering (SZSE:301136) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Fujian Tendering Co., Ltd. (SZSE:301136) makes use of debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Fujian Tendering's Debt?

As you can see below, at the end of September 2024, Fujian Tendering had CN¥103.0m of debt, up from CN¥82.6m a year ago. Click the image for more detail. But on the other hand it also has CN¥1.21b in cash, leading to a CN¥1.10b net cash position.

How Strong Is Fujian Tendering's Balance Sheet?

According to the last reported balance sheet, Fujian Tendering had liabilities of CN¥497.2m due within 12 months, and liabilities of CN¥52.6m due beyond 12 months. Offsetting this, it had CN¥1.21b in cash and CN¥518.3m in receivables that were due within 12 months. So it can boast CN¥1.18b more liquid assets than total liabilities.

This surplus liquidity suggests that Fujian Tendering's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Fujian Tendering boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Fujian Tendering'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.

View our latest analysis for Fujian Tendering

In the last year Fujian Tendering had a loss before interest and tax, and actually shrunk its revenue by 16%, to CN¥618m. That's not what we would hope to see.

So How Risky Is Fujian Tendering?

Although Fujian Tendering had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥31m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Fujian Tendering that you should be aware of.

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.