Does Guangdong Orient Zirconic Ind Sci & TechLtd (SZSE:002167) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Guangdong Orient Zirconic Ind Sci & Tech Co.,Ltd (SZSE:002167) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Guangdong Orient Zirconic Ind Sci & TechLtd

What Is Guangdong Orient Zirconic Ind Sci & TechLtd's Net Debt?

The image below, which you can click on for greater detail, shows that Guangdong Orient Zirconic Ind Sci & TechLtd had debt of CN¥577.5m at the end of September 2024, a reduction from CN¥962.1m over a year. On the flip side, it has CN¥437.1m in cash leading to net debt of about CN¥140.4m.

A Look At Guangdong Orient Zirconic Ind Sci & TechLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Guangdong Orient Zirconic Ind Sci & TechLtd had liabilities of CN¥1.67b due within 12 months and liabilities of CN¥216.0m due beyond that. Offsetting these obligations, it had cash of CN¥437.1m as well as receivables valued at CN¥308.5m due within 12 months. So it has liabilities totalling CN¥1.14b more than its cash and near-term receivables, combined.

Since publicly traded Guangdong Orient Zirconic Ind Sci & TechLtd shares are worth a total of CN¥6.86b, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Guangdong Orient Zirconic Ind Sci & TechLtd will need earnings to service that debt. 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 Guangdong Orient Zirconic Ind Sci & TechLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to CN¥1.6b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Guangdong Orient Zirconic Ind Sci & TechLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥161m 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. For example, we would not want to see a repeat of last year's loss of CN¥111m. So in short it's a really risky stock. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Guangdong Orient Zirconic Ind Sci & TechLtd's profit, revenue, and operating cashflow have changed over the last few years.

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.