Here's Why Jiangsu Haili Wind Power Equipment Technology (SZSE:301155) Can Afford Some 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.' 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 Jiangsu Haili Wind Power Equipment Technology Co., Ltd. (SZSE:301155) makes use of debt. But the more important question is: how much risk is that debt creating?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Jiangsu Haili Wind Power Equipment Technology

What Is Jiangsu Haili Wind Power Equipment Technology's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Jiangsu Haili Wind Power Equipment Technology had CN¥751.1m of debt, an increase on CN¥423.7m, over one year. On the flip side, it has CN¥602.6m in cash leading to net debt of about CN¥148.5m.

How Healthy Is Jiangsu Haili Wind Power Equipment Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jiangsu Haili Wind Power Equipment Technology had liabilities of CN¥2.21b due within 12 months and liabilities of CN¥77.4m due beyond that. On the other hand, it had cash of CN¥602.6m and CN¥1.67b worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Jiangsu Haili Wind Power Equipment Technology's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥9.56b company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Jiangsu Haili Wind Power Equipment Technology can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Jiangsu Haili Wind Power Equipment Technology made a loss at the EBIT level, and saw its revenue drop to CN¥1.3b, which is a fall of 34%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Jiangsu Haili Wind Power Equipment Technology's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at CN¥35m. 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. However, it doesn't help that it burned through CN¥1.0b of cash over the last year. So in short it's a really risky stock. For riskier companies like Jiangsu Haili Wind Power Equipment Technology 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.