Jiangsu Asia-Pacific Light Alloy Technology (SZSE:002540) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, '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 can see that Jiangsu Asia-Pacific Light Alloy Technology Co., Ltd. (SZSE:002540) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Jiangsu Asia-Pacific Light Alloy Technology

What Is Jiangsu Asia-Pacific Light Alloy Technology's Net Debt?

As you can see below, Jiangsu Asia-Pacific Light Alloy Technology had CN¥1.13b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has CN¥1.15b in cash, leading to a CN¥17.1m net cash position.

How Healthy Is Jiangsu Asia-Pacific Light Alloy Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jiangsu Asia-Pacific Light Alloy Technology had liabilities of CN¥787.2m due within 12 months and liabilities of CN¥1.21b due beyond that. On the other hand, it had cash of CN¥1.15b and CN¥2.47b worth of receivables due within a year. So it can boast CN¥1.61b more liquid assets than total liabilities.

It's good to see that Jiangsu Asia-Pacific Light Alloy Technology has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Jiangsu Asia-Pacific Light Alloy Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Jiangsu Asia-Pacific Light Alloy Technology has boosted its EBIT by 38%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Jiangsu Asia-Pacific Light Alloy Technology can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Jiangsu Asia-Pacific Light Alloy Technology may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Considering the last three years, Jiangsu Asia-Pacific Light Alloy Technology actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Jiangsu Asia-Pacific Light Alloy Technology has net cash of CN¥17.1m, as well as more liquid assets than liabilities. And we liked the look of last year's 38% year-on-year EBIT growth. So is Jiangsu Asia-Pacific Light Alloy Technology's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Jiangsu Asia-Pacific Light Alloy Technology has 1 warning sign we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.