Shanghai Wanye EnterprisesLtd (SHSE:600641) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Shanghai Wanye Enterprises Co.,Ltd (SHSE:600641) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

See our latest analysis for Shanghai Wanye EnterprisesLtd

What Is Shanghai Wanye EnterprisesLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Shanghai Wanye EnterprisesLtd had CN¥406.2m of debt in September 2024, down from CN¥567.6m, one year before. However, it does have CN¥3.64b in cash offsetting this, leading to net cash of CN¥3.24b.

How Healthy Is Shanghai Wanye EnterprisesLtd's Balance Sheet?

We can see from the most recent balance sheet that Shanghai Wanye EnterprisesLtd had liabilities of CN¥743.1m falling due within a year, and liabilities of CN¥770.8m due beyond that. On the other hand, it had cash of CN¥3.64b and CN¥111.4m worth of receivables due within a year. So it can boast CN¥2.24b more liquid assets than total liabilities.

It's good to see that Shanghai Wanye EnterprisesLtd has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Shanghai Wanye EnterprisesLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Shanghai Wanye EnterprisesLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Shanghai Wanye EnterprisesLtd had a loss before interest and tax, and actually shrunk its revenue by 69%, to CN¥510m. To be frank that doesn't bode well.

So How Risky Is Shanghai Wanye EnterprisesLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Shanghai Wanye EnterprisesLtd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CN¥475m of cash and made a loss of CN¥44m. Given it only has net cash of CN¥3.24b, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Shanghai Wanye EnterprisesLtd has 1 warning sign we think you should be aware of.

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.