We Think Shijiazhuang ChangShan BeiMing TechnologyLtd (SZSE:000158) Has A Fair Chunk Of Debt

Warren Buffett famously said, '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 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 assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Shijiazhuang ChangShan BeiMing TechnologyLtd

What Is Shijiazhuang ChangShan BeiMing TechnologyLtd's Debt?

The chart below, which you can click on for greater detail, shows that Shijiazhuang ChangShan BeiMing TechnologyLtd had CN¥5.55b in debt in March 2024; about the same as the year before. However, because it has a cash reserve of CN¥1.62b, its net debt is less, at about CN¥3.92b.

A Look At Shijiazhuang ChangShan BeiMing TechnologyLtd's Liabilities

The latest balance sheet data shows that Shijiazhuang ChangShan BeiMing TechnologyLtd had liabilities of CN¥8.61b due within a year, and liabilities of CN¥1.42b falling due after that. On the other hand, it had cash of CN¥1.62b and CN¥3.17b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥5.23b.

This deficit isn't so bad because Shijiazhuang ChangShan BeiMing TechnologyLtd is worth CN¥10.2b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Shijiazhuang ChangShan BeiMing TechnologyLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Shijiazhuang ChangShan BeiMing TechnologyLtd had a loss before interest and tax, and actually shrunk its revenue by 4.6%, to CN¥8.6b. That's not what we would hope to see.

Caveat Emptor

Importantly, Shijiazhuang ChangShan BeiMing TechnologyLtd had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CN¥66m. 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. For example, we would not want to see a repeat of last year's loss of CN¥146m. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Shijiazhuang ChangShan BeiMing TechnologyLtd has 2 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

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