Health Check: How Prudently Does Shanghai Yaohua Pilkington Glass Group (SHSE:600819) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that Shanghai Yaohua Pilkington Glass Group Co., Ltd. (SHSE:600819) 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?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Shanghai Yaohua Pilkington Glass Group

What Is Shanghai Yaohua Pilkington Glass Group's Net Debt?

The image below, which you can click on for greater detail, shows that Shanghai Yaohua Pilkington Glass Group had debt of CN¥570.7m at the end of March 2024, a reduction from CN¥776.5m over a year. However, it does have CN¥1.04b in cash offsetting this, leading to net cash of CN¥472.8m.

How Strong Is Shanghai Yaohua Pilkington Glass Group's Balance Sheet?

The latest balance sheet data shows that Shanghai Yaohua Pilkington Glass Group had liabilities of CN¥2.82b due within a year, and liabilities of CN¥676.9m falling due after that. On the other hand, it had cash of CN¥1.04b and CN¥1.25b worth of receivables due within a year. So it has liabilities totalling CN¥1.20b more than its cash and near-term receivables, combined.

Shanghai Yaohua Pilkington Glass Group has a market capitalization of CN¥3.88b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Shanghai Yaohua Pilkington Glass Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Shanghai Yaohua Pilkington Glass Group's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, Shanghai Yaohua Pilkington Glass Group reported revenue of CN¥5.9b, which is a gain of 25%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Shanghai Yaohua Pilkington Glass Group?

Although Shanghai Yaohua Pilkington Glass Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥352m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. The good news for Shanghai Yaohua Pilkington Glass Group shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with Shanghai Yaohua Pilkington Glass Group (including 1 which can't be ignored) .

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.