Tianjin Troila Information TechnologyLtd (SHSE:600225) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Tianjin Troila Information Technology Co.,Ltd. (SHSE:600225) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Tianjin Troila Information TechnologyLtd

What Is Tianjin Troila Information TechnologyLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that Tianjin Troila Information TechnologyLtd had CN¥2.34b of debt in September 2024, down from CN¥2.57b, one year before. However, because it has a cash reserve of CN¥84.4m, its net debt is less, at about CN¥2.26b.

A Look At Tianjin Troila Information TechnologyLtd's Liabilities

According to the last reported balance sheet, Tianjin Troila Information TechnologyLtd had liabilities of CN¥3.91b due within 12 months, and liabilities of CN¥1.37b due beyond 12 months. On the other hand, it had cash of CN¥84.4m and CN¥734.9m worth of receivables due within a year. So its liabilities total CN¥4.47b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of CN¥5.19b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Tianjin Troila Information TechnologyLtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Tianjin Troila Information TechnologyLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 5.8%, to CN¥889m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Tianjin Troila Information TechnologyLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CN¥349m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥495m of cash over the last year. So in short it's a really risky stock. 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. Case in point: We've spotted 1 warning sign for Tianjin Troila Information TechnologyLtd you should be aware of.

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.