Leshan Giantstar Farming&Husbandry (SHSE:603477) Is Carrying A Fair Bit Of 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. We note that Leshan Giantstar Farming&Husbandry Corporation Limited (SHSE:603477) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

Check out our latest analysis for Leshan Giantstar Farming&Husbandry

What Is Leshan Giantstar Farming&Husbandry's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Leshan Giantstar Farming&Husbandry had CN¥3.21b of debt, an increase on CN¥2.79b, over one year. On the flip side, it has CN¥393.4m in cash leading to net debt of about CN¥2.82b.

A Look At Leshan Giantstar Farming&Husbandry's Liabilities

According to the last reported balance sheet, Leshan Giantstar Farming&Husbandry had liabilities of CN¥2.84b due within 12 months, and liabilities of CN¥2.05b due beyond 12 months. Offsetting these obligations, it had cash of CN¥393.4m as well as receivables valued at CN¥59.9m due within 12 months. So it has liabilities totalling CN¥4.44b more than its cash and near-term receivables, combined.

Leshan Giantstar Farming&Husbandry has a market capitalization of CN¥10.5b, so it could very likely raise cash to ameliorate 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 ultimately the future profitability of the business will decide if Leshan Giantstar Farming&Husbandry 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.

Over 12 months, Leshan Giantstar Farming&Husbandry saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Leshan Giantstar Farming&Husbandry produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CN¥394m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥1.1b of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Leshan Giantstar Farming&Husbandry has 1 warning sign we think you should be aware of.

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.