We Think Tianjin Troila Information TechnologyLtd (SHSE:600225) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Tianjin Troila Information Technology Co.,Ltd. (SHSE:600225) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Net Debt?

The chart below, which you can click on for greater detail, shows that Tianjin Troila Information TechnologyLtd had CN¥2.49b in debt in March 2024; about the same as the year before. On the flip side, it has CN¥275.4m in cash leading to net debt of about CN¥2.22b.

How Strong Is Tianjin Troila Information TechnologyLtd's Balance Sheet?

The latest balance sheet data shows that Tianjin Troila Information TechnologyLtd had liabilities of CN¥3.80b due within a year, and liabilities of CN¥1.44b falling due after that. Offsetting these obligations, it had cash of CN¥275.4m as well as receivables valued at CN¥713.8m due within 12 months. So its liabilities total CN¥4.25b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CN¥6.04b, so it does suggest shareholders should keep an eye on Tianjin Troila Information TechnologyLtd's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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.

Over 12 months, Tianjin Troila Information TechnologyLtd reported revenue of CN¥1.1b, which is a gain of 17%, although it did not report any earnings before interest and tax. 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. To be specific the EBIT loss came in at CN¥145m. 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¥1.2b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Tianjin Troila Information TechnologyLtd you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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