Jinneng Holding Shanxi Coal Industryltd (SHSE:601001) Could Easily Take On More Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Jinneng Holding Shanxi Coal Industry Co.,ltd. (SHSE:601001) does use debt in its business. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Jinneng Holding Shanxi Coal Industryltd

What Is Jinneng Holding Shanxi Coal Industryltd's Net Debt?

As you can see below, Jinneng Holding Shanxi Coal Industryltd had CN¥4.79b of debt at September 2024, down from CN¥5.14b a year prior. However, it does have CN¥16.0b in cash offsetting this, leading to net cash of CN¥11.2b.

How Healthy Is Jinneng Holding Shanxi Coal Industryltd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jinneng Holding Shanxi Coal Industryltd had liabilities of CN¥8.69b due within 12 months and liabilities of CN¥2.71b due beyond that. Offsetting these obligations, it had cash of CN¥16.0b as well as receivables valued at CN¥1.50b due within 12 months. So it can boast CN¥6.07b more liquid assets than total liabilities.

This excess liquidity suggests that Jinneng Holding Shanxi Coal Industryltd is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Jinneng Holding Shanxi Coal Industryltd boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Jinneng Holding Shanxi Coal Industryltd has boosted its EBIT by 33%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Jinneng Holding Shanxi Coal Industryltd can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Jinneng Holding Shanxi Coal Industryltd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Jinneng Holding Shanxi Coal Industryltd recorded free cash flow worth a fulsome 95% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Jinneng Holding Shanxi Coal Industryltd has net cash of CN¥11.2b, as well as more liquid assets than liabilities. The cherry on top was that in converted 95% of that EBIT to free cash flow, bringing in CN¥4.4b. The bottom line is that we do not find Jinneng Holding Shanxi Coal Industryltd's debt levels at all concerning. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Jinneng Holding Shanxi Coal Industryltd's dividend history, without delay!

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.

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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.