We Think Bluestar Adisseo (SHSE:600299) Can Manage Its Debt With Ease

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Bluestar Adisseo Company (SHSE:600299) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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 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 Bluestar Adisseo

What Is Bluestar Adisseo's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Bluestar Adisseo had CN¥1.17b of debt in September 2024, down from CN¥1.92b, one year before. But it also has CN¥1.33b in cash to offset that, meaning it has CN¥168.7m net cash.

How Strong Is Bluestar Adisseo's Balance Sheet?

According to the last reported balance sheet, Bluestar Adisseo had liabilities of CN¥3.60b due within 12 months, and liabilities of CN¥2.81b due beyond 12 months. Offsetting this, it had CN¥1.33b in cash and CN¥2.22b in receivables that were due within 12 months. So it has liabilities totalling CN¥2.86b more than its cash and near-term receivables, combined.

Since publicly traded Bluestar Adisseo shares are worth a total of CN¥30.7b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Bluestar Adisseo boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Bluestar Adisseo grew its EBIT by 705% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 Bluestar Adisseo 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Bluestar Adisseo 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. During the last three years, Bluestar Adisseo produced sturdy free cash flow equating to 77% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Bluestar Adisseo has CN¥168.7m in net cash. And we liked the look of last year's 705% year-on-year EBIT growth. So is Bluestar Adisseo's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Bluestar Adisseo, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.