Does Langold Real Estate (SZSE:002305) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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. Importantly, Langold Real Estate Co., Ltd. (SZSE:002305) does carry debt. But the real question is whether this debt is making the company risky.

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Langold Real Estate

What Is Langold Real Estate's Debt?

As you can see below, at the end of September 2024, Langold Real Estate had CN¥4.46b of debt, up from CN¥4.03b a year ago. Click the image for more detail. However, it does have CN¥1.12b in cash offsetting this, leading to net debt of about CN¥3.34b.

How Strong Is Langold Real Estate's Balance Sheet?

We can see from the most recent balance sheet that Langold Real Estate had liabilities of CN¥17.3b falling due within a year, and liabilities of CN¥4.93b due beyond that. Offsetting this, it had CN¥1.12b in cash and CN¥3.09b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥18.0b.

This deficit casts a shadow over the CN¥4.02b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Langold Real Estate would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Langold Real Estate 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.

In the last year Langold Real Estate had a loss before interest and tax, and actually shrunk its revenue by 70%, to CN¥2.3b. To be frank that doesn't bode well.

Caveat Emptor

Not only did Langold Real Estate's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable CN¥907m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through CN¥418m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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. Case in point: We've spotted 1 warning sign for Langold Real Estate you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.