Is Jiangsu Haili Wind Power Equipment Technology (SZSE:301155) Using Too Much 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 Jiangsu Haili Wind Power Equipment Technology Co., Ltd. (SZSE:301155) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Jiangsu Haili Wind Power Equipment Technology

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

The image below, which you can click on for greater detail, shows that at September 2024 Jiangsu Haili Wind Power Equipment Technology had debt of CN¥1.28b, up from CN¥615.4m in one year. However, it also had CN¥962.5m in cash, and so its net debt is CN¥320.2m.

A Look At Jiangsu Haili Wind Power Equipment Technology's Liabilities

The latest balance sheet data shows that Jiangsu Haili Wind Power Equipment Technology had liabilities of CN¥3.08b due within a year, and liabilities of CN¥181.3m falling due after that. Offsetting these obligations, it had cash of CN¥962.5m as well as receivables valued at CN¥1.40b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥904.3m.

Of course, Jiangsu Haili Wind Power Equipment Technology has a market capitalization of CN¥13.9b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 Haili Wind Power Equipment Technology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Jiangsu Haili Wind Power Equipment Technology had a loss before interest and tax, and actually shrunk its revenue by 41%, to CN¥1.2b. To be frank that doesn't bode well.

Caveat Emptor

While Jiangsu Haili Wind Power Equipment Technology's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at CN¥158m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥613m of cash over the last year. So to be blunt we think it is risky. 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 Jiangsu Haili Wind Power Equipment Technology 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.