Does Jiangsu Shuangxing Color Plastic New Materials (SZSE:002585) Have A Healthy Balance Sheet?

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. We can see that Jiangsu Shuangxing Color Plastic New Materials Co., Ltd. (SZSE:002585) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

View our latest analysis for Jiangsu Shuangxing Color Plastic New Materials

How Much Debt Does Jiangsu Shuangxing Color Plastic New Materials Carry?

As you can see below, at the end of June 2024, Jiangsu Shuangxing Color Plastic New Materials had CN¥1.34b of debt, up from CN¥972.9m a year ago. Click the image for more detail. On the flip side, it has CN¥489.5m in cash leading to net debt of about CN¥848.8m.

How Healthy Is Jiangsu Shuangxing Color Plastic New Materials' Balance Sheet?

We can see from the most recent balance sheet that Jiangsu Shuangxing Color Plastic New Materials had liabilities of CN¥3.43b falling due within a year, and liabilities of CN¥464.3m due beyond that. On the other hand, it had cash of CN¥489.5m and CN¥1.36b worth of receivables due within a year. So it has liabilities totalling CN¥2.04b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Jiangsu Shuangxing Color Plastic New Materials is worth CN¥5.35b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Shuangxing Color Plastic New Materials can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Jiangsu Shuangxing Color Plastic New Materials wasn't profitable at an EBIT level, but managed to grow its revenue by 8.1%, to CN¥5.6b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Jiangsu Shuangxing Color Plastic New Materials produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping CN¥539m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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¥374m of cash over the last year. So suffice it to say we consider the stock very 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. To that end, you should be aware of the 1 warning sign we've spotted with Jiangsu Shuangxing Color Plastic New Materials .

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.