We Think CGN Nuclear Technology Development (SZSE:000881) Has A Fair Chunk Of Debt

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 CGN Nuclear Technology Development Co., Ltd. (SZSE:000881) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for CGN Nuclear Technology Development

What Is CGN Nuclear Technology Development's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 CGN Nuclear Technology Development had CN¥3.11b of debt, an increase on CN¥2.22b, over one year. However, it does have CN¥1.35b in cash offsetting this, leading to net debt of about CN¥1.76b.

How Healthy Is CGN Nuclear Technology Development's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CGN Nuclear Technology Development had liabilities of CN¥3.84b due within 12 months and liabilities of CN¥1.26b due beyond that. On the other hand, it had cash of CN¥1.35b and CN¥3.20b worth of receivables due within a year. So its liabilities total CN¥545.9m more than the combination of its cash and short-term receivables.

Since publicly traded CGN Nuclear Technology Development shares are worth a total of CN¥6.18b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is CGN Nuclear Technology Development'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, CGN Nuclear Technology Development reported revenue of CN¥6.4b, which is a gain of 3.7%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, CGN Nuclear Technology Development had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥423m at the EBIT level. 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. However, it doesn't help that it burned through CN¥138m of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for CGN Nuclear Technology Development you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.