Is Sansteel MinGuangLtd.Fujian (SZSE:002110) Weighed On By Its Debt Load?

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. Importantly, Sansteel MinGuang Co.,Ltd.,Fujian (SZSE:002110) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Sansteel MinGuangLtd.Fujian

How Much Debt Does Sansteel MinGuangLtd.Fujian Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Sansteel MinGuangLtd.Fujian had CN¥17.9b of debt, an increase on CN¥14.9b, over one year. However, it does have CN¥7.81b in cash offsetting this, leading to net debt of about CN¥10.1b.

How Healthy Is Sansteel MinGuangLtd.Fujian's Balance Sheet?

We can see from the most recent balance sheet that Sansteel MinGuangLtd.Fujian had liabilities of CN¥28.1b falling due within a year, and liabilities of CN¥4.14b due beyond that. Offsetting these obligations, it had cash of CN¥7.81b as well as receivables valued at CN¥5.76b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥18.7b.

This deficit casts a shadow over the CN¥8.62b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Sansteel MinGuangLtd.Fujian 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 future earnings, more than anything, that will determine Sansteel MinGuangLtd.Fujian's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Sansteel MinGuangLtd.Fujian saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Sansteel MinGuangLtd.Fujian produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥46m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of CN¥3.3b over the last twelve months. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Sansteel MinGuangLtd.Fujian is showing 3 warning signs in our investment analysis , you should know about...

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.