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.' 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. As with many other companies Keshun Waterproof Technolgies Co.,Ltd. (SZSE:300737) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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

How Much Debt Does Keshun Waterproof TechnolgiesLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Keshun Waterproof TechnolgiesLtd had CN¥5.47b of debt, an increase on CN¥4.63b, over one year. However, it also had CN¥3.65b in cash, and so its net debt is CN¥1.82b.

How Healthy Is Keshun Waterproof TechnolgiesLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Keshun Waterproof TechnolgiesLtd had liabilities of CN¥6.61b due within 12 months and liabilities of CN¥3.00b due beyond that. On the other hand, it had cash of CN¥3.65b and CN¥6.00b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to Keshun Waterproof TechnolgiesLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥5.66b company is struggling for cash, we still think it's worth monitoring its balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Keshun Waterproof TechnolgiesLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Keshun Waterproof TechnolgiesLtd had a loss before interest and tax, and actually shrunk its revenue by 14%, to CN¥6.8b. That's not what we would hope to see.

Caveat Emptor

While Keshun Waterproof TechnolgiesLtd's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at CN¥304m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Keshun Waterproof TechnolgiesLtd 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.