Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Jilin Yatai (Group) Co., Ltd. (SHSE:600881) makes use of debt. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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.
Check out our latest analysis for Jilin Yatai (Group)
What Is Jilin Yatai (Group)'s Debt?
The chart below, which you can click on for greater detail, shows that Jilin Yatai (Group) had CN¥28.6b in debt in March 2024; about the same as the year before. On the flip side, it has CN¥780.1m in cash leading to net debt of about CN¥27.8b.
A Look At Jilin Yatai (Group)'s Liabilities
Zooming in on the latest balance sheet data, we can see that Jilin Yatai (Group) had liabilities of CN¥36.5b due within 12 months and liabilities of CN¥2.83b due beyond that. On the other hand, it had cash of CN¥780.1m and CN¥5.57b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥33.0b.
This deficit casts a shadow over the CN¥4.16b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Jilin Yatai (Group) would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Jilin Yatai (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.
In the last year Jilin Yatai (Group) had a loss before interest and tax, and actually shrunk its revenue by 27%, to CN¥8.6b. To be frank that doesn't bode well.
Caveat Emptor
While Jilin Yatai (Group)'s falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable CN¥2.7b at the EBIT level. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost CN¥4.1b in the last year. So we think buying this stock is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Jilin Yatai (Group) you should know about.
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.
About SHSE:600881
Good value with mediocre balance sheet.
