We Think Rising Nonferrous Metals ShareLtd (SHSE:600259) Has A Fair Chunk 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. 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?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Rising Nonferrous Metals ShareLtd

What Is Rising Nonferrous Metals ShareLtd's Debt?

The chart below, which you can click on for greater detail, shows that Rising Nonferrous Metals ShareLtd had CN¥2.46b in debt in June 2024; about the same as the year before. However, it also had CN¥994.3m in cash, and so its net debt is CN¥1.47b.

A Look At Rising Nonferrous Metals ShareLtd's Liabilities

According to the last reported balance sheet, Rising Nonferrous Metals ShareLtd had liabilities of CN¥3.41b due within 12 months, and liabilities of CN¥935.4m due beyond 12 months. Offsetting this, it had CN¥994.3m in cash and CN¥551.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥2.80b.

This deficit isn't so bad because Rising Nonferrous Metals ShareLtd is worth CN¥9.18b, and thus could probably raise enough capital to shore up 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 ultimately the future profitability of the business will decide if Rising Nonferrous Metals ShareLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Rising Nonferrous Metals ShareLtd made a loss at the EBIT level, and saw its revenue drop to CN¥15b, which is a fall of 33%. 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¥288m. 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. Another cause for caution is that is bled CN¥107m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. For riskier companies like Rising Nonferrous Metals ShareLtd I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.