Is Rising Nonferrous Metals ShareLtd (SHSE:600259) A Risky Investment?

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 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. We can see that Rising Nonferrous Metals Share Co.,Ltd. (SHSE:600259) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Rising Nonferrous Metals ShareLtd

What Is Rising Nonferrous Metals ShareLtd's Debt?

As you can see below, Rising Nonferrous Metals ShareLtd had CN¥2.67b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have CN¥983.5m in cash offsetting this, leading to net debt of about CN¥1.69b.

How Healthy Is Rising Nonferrous Metals ShareLtd's Balance Sheet?

We can see from the most recent balance sheet that Rising Nonferrous Metals ShareLtd had liabilities of CN¥3.71b falling due within a year, and liabilities of CN¥1.08b due beyond that. Offsetting this, it had CN¥983.5m in cash and CN¥384.0m in receivables that were due within 12 months. So its liabilities total CN¥3.42b more than the combination of its cash and short-term receivables.

Rising Nonferrous Metals ShareLtd has a market capitalization of CN¥9.37b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Rising Nonferrous Metals ShareLtd's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Rising Nonferrous Metals ShareLtd had a loss before interest and tax, and actually shrunk its revenue by 32%, to CN¥16b. To be frank that doesn't bode well.

Caveat Emptor

While Rising Nonferrous Metals ShareLtd's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at CN¥94m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CN¥499m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Rising Nonferrous Metals ShareLtd you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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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