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 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. Importantly, Vantone Neo Development Group Co., Ltd. (SHSE:600246) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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

What Is Vantone Neo Development Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Vantone Neo Development Group had CN¥1.81b of debt in September 2024, down from CN¥1.90b, one year before. However, it does have CN¥1.10b in cash offsetting this, leading to net debt of about CN¥705.1m.

A Look At Vantone Neo Development Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Vantone Neo Development Group had liabilities of CN¥763.5m due within 12 months and liabilities of CN¥1.78b due beyond that. On the other hand, it had cash of CN¥1.10b and CN¥639.0m worth of receivables due within a year. So it has liabilities totalling CN¥806.0m more than its cash and near-term receivables, combined.

Given Vantone Neo Development Group has a market capitalization of CN¥11.6b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Vantone Neo Development Group will need earnings to service that debt. 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¥458m, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

Not only did Vantone Neo Development Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CN¥157m 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¥47m of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Vantone Neo Development Group that you should be aware of before investing here.

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.