Is Jiangsu Haili Wind Power Equipment Technology (SZSE:301155) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Jiangsu Haili Wind Power Equipment Technology Co., Ltd. (SZSE:301155) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

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.

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¥3.08b due within 12 months and liabilities of CN¥181.3m due beyond that. On the other hand, it had cash of CN¥962.5m and CN¥1.40b worth of receivables due within a year. So its liabilities total CN¥904.3m more than the combination of its cash and short-term receivables.

Since publicly traded Jiangsu Haili Wind Power Equipment Technology shares are worth a total of CN¥14.6b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. 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're focused on the future you can check out this free report showing analyst profit forecasts.

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

Over 12 months, Jiangsu Haili Wind Power Equipment Technology made a loss at the EBIT level, and saw its revenue drop to CN¥1.2b, which is a fall of 41%. 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¥158m. 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¥613m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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.