We Think Shantou Wanshun New Material Group (SZSE:300057) Has A Fair Chunk Of Debt

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 note that Shantou Wanshun New Material Group Co., Ltd. (SZSE:300057) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Shantou Wanshun New Material Group

How Much Debt Does Shantou Wanshun New Material Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Shantou Wanshun New Material Group had CN¥3.30b of debt, an increase on CN¥2.73b, over one year. On the flip side, it has CN¥2.16b in cash leading to net debt of about CN¥1.14b.

How Strong Is Shantou Wanshun New Material Group's Balance Sheet?

The latest balance sheet data shows that Shantou Wanshun New Material Group had liabilities of CN¥4.09b due within a year, and liabilities of CN¥1.03b falling due after that. On the other hand, it had cash of CN¥2.16b and CN¥2.05b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥904.1m.

Of course, Shantou Wanshun New Material Group has a market capitalization of CN¥4.97b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 Shantou Wanshun New Material Group 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 Shantou Wanshun New Material Group wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to CN¥6.3b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Shantou Wanshun New Material Group had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CN¥40m. 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. Another cause for caution is that is bled CN¥766m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Shantou Wanshun New Material Group has 1 warning sign we think you should be aware of.

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.