Would Keshun Waterproof TechnolgiesLtd (SZSE:300737) Be Better Off With Less Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that Keshun Waterproof Technolgies Co.,Ltd. (SZSE:300737) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Keshun Waterproof TechnolgiesLtd

What Is Keshun Waterproof TechnolgiesLtd's Net Debt?

As you can see below, at the end of March 2024, Keshun Waterproof TechnolgiesLtd had CN¥4.51b of debt, up from CN¥2.61b a year ago. Click the image for more detail. However, it also had CN¥2.93b in cash, and so its net debt is CN¥1.57b.

A Look At Keshun Waterproof TechnolgiesLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Keshun Waterproof TechnolgiesLtd had liabilities of CN¥5.24b due within 12 months and liabilities of CN¥3.01b due beyond that. Offsetting this, it had CN¥2.93b in cash and CN¥5.41b in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Keshun Waterproof TechnolgiesLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥7.25b company is short on cash, but still worth keeping an eye on the balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Keshun Waterproof TechnolgiesLtd 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.

Over 12 months, Keshun Waterproof TechnolgiesLtd made a loss at the EBIT level, and saw its revenue drop to CN¥7.6b, which is a fall of 2.9%. That's not what we would hope to see.

Caveat Emptor

Importantly, Keshun Waterproof TechnolgiesLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥398m at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Keshun Waterproof TechnolgiesLtd is showing 1 warning sign in our investment analysis , you should know about...

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.