We Think Jiangsu Shuangxing Color Plastic New Materials (SZSE:002585) Has A Fair Chunk Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Jiangsu Shuangxing Color Plastic New Materials Co., Ltd. (SZSE:002585) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Jiangsu Shuangxing Color Plastic New Materials

What Is Jiangsu Shuangxing Color Plastic New Materials's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Jiangsu Shuangxing Color Plastic New Materials had debt of CN¥1.20b, up from CN¥745.3m in one year. However, it also had CN¥530.2m in cash, and so its net debt is CN¥669.8m.

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

Zooming in on the latest balance sheet data, we can see that Jiangsu Shuangxing Color Plastic New Materials had liabilities of CN¥3.76b due within 12 months and liabilities of CN¥317.0m due beyond that. On the other hand, it had cash of CN¥530.2m and CN¥1.70b worth of receivables due within a year. So it has liabilities totalling CN¥1.85b more than its cash and near-term receivables, combined.

Jiangsu Shuangxing Color Plastic New Materials has a market capitalization of CN¥7.03b, so it could very likely raise cash to ameliorate 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. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Jiangsu Shuangxing Color Plastic New Materials'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, Jiangsu Shuangxing Color Plastic New Materials made a loss at the EBIT level, and saw its revenue drop to CN¥5.4b, which is a fall of 3.8%. That's not what we would hope to see.

Caveat Emptor

Importantly, Jiangsu Shuangxing Color Plastic New Materials had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥356m 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥92m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. For riskier companies like Jiangsu Shuangxing Color Plastic New Materials I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.