Beijing Urban Construction Investment & Development (SHSE:600266) Has Debt But No Earnings; Should You Worry?

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.' 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. We note that Beijing Urban Construction Investment & Development Co., Ltd. (SHSE:600266) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Beijing Urban Construction Investment & Development

What Is Beijing Urban Construction Investment & Development's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Beijing Urban Construction Investment & Development had CN¥42.0b of debt in September 2024, down from CN¥50.7b, one year before. However, it does have CN¥13.0b in cash offsetting this, leading to net debt of about CN¥29.0b.

How Strong Is Beijing Urban Construction Investment & Development's Balance Sheet?

According to the last reported balance sheet, Beijing Urban Construction Investment & Development had liabilities of CN¥66.6b due within 12 months, and liabilities of CN¥39.7b due beyond 12 months. On the other hand, it had cash of CN¥13.0b and CN¥5.18b worth of receivables due within a year. So it has liabilities totalling CN¥88.1b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the CN¥10.4b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Beijing Urban Construction Investment & Development would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Beijing Urban Construction Investment & Development can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Beijing Urban Construction Investment & Development had a loss before interest and tax, and actually shrunk its revenue by 48%, to CN¥16b. That makes us nervous, to say the least.

Caveat Emptor

While Beijing Urban Construction Investment & Development's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at CN¥103m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But we note that trailing twelve month EBIT is worse than the free cash flow of CN¥7.0b and the profit of CN¥359m. So while its ongoing EBIT might disappoint, it has a fair bit going for it! 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. We've identified 3 warning signs with Beijing Urban Construction Investment & Development (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.