Is Lecron Industrial Development Group (SZSE:300343) A Risky Investment?

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.' 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 Lecron Industrial Development Group Co., Ltd. (SZSE:300343) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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. 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.

See our latest analysis for Lecron Industrial Development Group

How Much Debt Does Lecron Industrial Development Group Carry?

You can click the graphic below for the historical numbers, but it shows that Lecron Industrial Development Group had CN¥108.5m of debt in September 2024, down from CN¥172.4m, one year before. However, its balance sheet shows it holds CN¥643.7m in cash, so it actually has CN¥535.2m net cash.

A Look At Lecron Industrial Development Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Lecron Industrial Development Group had liabilities of CN¥448.6m due within 12 months and liabilities of CN¥69.1m due beyond that. Offsetting these obligations, it had cash of CN¥643.7m as well as receivables valued at CN¥433.9m due within 12 months. So it actually has CN¥559.9m more liquid assets than total liabilities.

This surplus suggests that Lecron Industrial Development Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Lecron Industrial Development Group boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Lecron Industrial Development Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Lecron Industrial Development Group made a loss at the EBIT level, and saw its revenue drop to CN¥972m, which is a fall of 4.4%. We would much prefer see growth.

So How Risky Is Lecron Industrial Development Group?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Lecron Industrial Development Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥116m and booked a CN¥34m accounting loss. But the saving grace is the CN¥535.2m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Lecron Industrial Development Group you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.