Shijiazhuang ChangShan BeiMing TechnologyLtd (SZSE:000158) Is Making Moderate Use Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Shijiazhuang ChangShan BeiMing Technology Co.,Ltd (SZSE:000158) makes use of debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Shijiazhuang ChangShan BeiMing TechnologyLtd

How Much Debt Does Shijiazhuang ChangShan BeiMing TechnologyLtd Carry?

As you can see below, Shijiazhuang ChangShan BeiMing TechnologyLtd had CN¥5.41b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has CN¥1.22b in cash leading to net debt of about CN¥4.19b.

How Healthy Is Shijiazhuang ChangShan BeiMing TechnologyLtd's Balance Sheet?

The latest balance sheet data shows that Shijiazhuang ChangShan BeiMing TechnologyLtd had liabilities of CN¥9.53b due within a year, and liabilities of CN¥1.53b falling due after that. Offsetting this, it had CN¥1.22b in cash and CN¥3.53b in receivables that were due within 12 months. So it has liabilities totalling CN¥6.31b more than its cash and near-term receivables, combined.

Since publicly traded Shijiazhuang ChangShan BeiMing TechnologyLtd shares are worth a total of CN¥42.7b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Shijiazhuang ChangShan BeiMing TechnologyLtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Shijiazhuang ChangShan BeiMing TechnologyLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 9.4%, to CN¥9.3b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Shijiazhuang ChangShan BeiMing TechnologyLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥239m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of CN¥250m. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Shijiazhuang ChangShan BeiMing TechnologyLtd , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.