We Think Jiangsu ToLand AlloyLtd (SZSE:300855) Can Stay On Top Of Its 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 Jiangsu ToLand Alloy Co.,Ltd (SZSE:300855) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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.

Check out our latest analysis for Jiangsu ToLand AlloyLtd

How Much Debt Does Jiangsu ToLand AlloyLtd Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Jiangsu ToLand AlloyLtd had debt of CN¥167.5m, up from CN¥80.0m in one year. However, it does have CN¥319.2m in cash offsetting this, leading to net cash of CN¥151.7m.

A Look At Jiangsu ToLand AlloyLtd's Liabilities

The latest balance sheet data shows that Jiangsu ToLand AlloyLtd had liabilities of CN¥371.3m due within a year, and liabilities of CN¥148.9m falling due after that. On the other hand, it had cash of CN¥319.2m and CN¥554.9m worth of receivables due within a year. So it actually has CN¥353.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Jiangsu ToLand AlloyLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Jiangsu ToLand AlloyLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

While Jiangsu ToLand AlloyLtd doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. 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 Jiangsu ToLand AlloyLtd 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Jiangsu ToLand AlloyLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Considering the last three years, Jiangsu ToLand AlloyLtd actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case Jiangsu ToLand AlloyLtd has CN¥151.7m in net cash and a decent-looking balance sheet. So we don't have any problem with Jiangsu ToLand AlloyLtd's use of debt. 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. Case in point: We've spotted 1 warning sign for Jiangsu ToLand AlloyLtd you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.