Jilin Quanyangquan (SHSE:600189) Is Making Moderate Use 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.' 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 Jilin Quanyangquan Co., Ltd. (SHSE:600189) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Jilin Quanyangquan

How Much Debt Does Jilin Quanyangquan Carry?

The image below, which you can click on for greater detail, shows that Jilin Quanyangquan had debt of CN¥1.53b at the end of March 2024, a reduction from CN¥1.63b over a year. However, it also had CN¥629.4m in cash, and so its net debt is CN¥904.2m.

How Healthy Is Jilin Quanyangquan's Balance Sheet?

The latest balance sheet data shows that Jilin Quanyangquan had liabilities of CN¥2.24b due within a year, and liabilities of CN¥720.0m falling due after that. On the other hand, it had cash of CN¥629.4m and CN¥1.70b worth of receivables due within a year. So its liabilities total CN¥639.3m more than the combination of its cash and short-term receivables.

Of course, Jilin Quanyangquan has a market capitalization of CN¥5.43b, so these liabilities are probably manageable. 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 Jilin Quanyangquan 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 Jilin Quanyangquan had a loss before interest and tax, and actually shrunk its revenue by 8.1%, to CN¥1.1b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Jilin Quanyangquan produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥44m. 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¥442m. So to be blunt we do think it is risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Jilin Quanyangquan's profit, revenue, and operating cashflow have changed over the last few years.

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.