COL GroupLtd (SZSE:300364) Is Making Moderate Use Of Debt

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.' 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. Importantly, COL Group Co.,Ltd. (SZSE:300364) does carry debt. But is this debt a concern to shareholders?

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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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does COL GroupLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 COL GroupLtd had CN¥323.0m of debt, an increase on CN¥139.0m, over one year. However, it also had CN¥215.4m in cash, and so its net debt is CN¥107.6m.

A Look At COL GroupLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that COL GroupLtd had liabilities of CN¥534.3m due within 12 months and liabilities of CN¥112.7m due beyond that. On the other hand, it had cash of CN¥215.4m and CN¥149.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥281.8m.

Having regard to COL GroupLtd'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¥17.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, COL GroupLtd has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if COL GroupLtd 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.

See our latest analysis for COL GroupLtd

In the last year COL GroupLtd had a loss before interest and tax, and actually shrunk its revenue by 7.2%, to CN¥1.2b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months COL GroupLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥106m. 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¥111m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. For riskier companies like COL GroupLtd I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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.