Vantone Neo Development Group (SHSE:600246) Is Carrying A Fair Bit Of 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Vantone Neo Development Group Co., Ltd. (SHSE:600246) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Vantone Neo Development Group

How Much Debt Does Vantone Neo Development Group Carry?

As you can see below, Vantone Neo Development Group had CN¥1.83b of debt at March 2024, down from CN¥2.11b a year prior. However, it does have CN¥1.19b in cash offsetting this, leading to net debt of about CN¥633.7m.

How Healthy Is Vantone Neo Development Group's Balance Sheet?

We can see from the most recent balance sheet that Vantone Neo Development Group had liabilities of CN¥784.9m falling due within a year, and liabilities of CN¥1.80b due beyond that. On the other hand, it had cash of CN¥1.19b and CN¥658.2m worth of receivables due within a year. So it has liabilities totalling CN¥738.4m more than its cash and near-term receivables, combined.

Given Vantone Neo Development Group has a market capitalization of CN¥11.3b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Vantone Neo Development Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Vantone Neo Development Group made a loss at the EBIT level, and saw its revenue drop to CN¥437m, which is a fall of 9.6%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Vantone Neo Development Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CN¥145m 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. 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¥135m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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. Be aware that Vantone Neo Development Group is showing 2 warning signs in our investment analysis , you should know about...

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.