Is LONGi Green Energy Technology (SHSE:601012) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies LONGi Green Energy Technology Co., Ltd. (SHSE:601012) makes use of debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for LONGi Green Energy Technology

What Is LONGi Green Energy Technology's Net Debt?

As you can see below, at the end of September 2024, LONGi Green Energy Technology had CN¥21.4b of debt, up from CN¥10.6b a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥51.1b in cash, so it actually has CN¥29.8b net cash.

A Look At LONGi Green Energy Technology's Liabilities

According to the last reported balance sheet, LONGi Green Energy Technology had liabilities of CN¥63.0b due within 12 months, and liabilities of CN¥28.9b due beyond 12 months. On the other hand, it had cash of CN¥51.1b and CN¥14.4b worth of receivables due within a year. So its liabilities total CN¥26.3b more than the combination of its cash and short-term receivables.

Of course, LONGi Green Energy Technology has a titanic market capitalization of CN¥138.7b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, LONGi Green Energy Technology boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine LONGi Green Energy Technology'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.

Over 12 months, LONGi Green Energy Technology made a loss at the EBIT level, and saw its revenue drop to CN¥94b, which is a fall of 31%. To be frank that doesn't bode well.

So How Risky Is LONGi Green Energy Technology?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year LONGi Green Energy Technology had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥16b and booked a CN¥7.4b accounting loss. With only CN¥29.8b on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Be aware that LONGi Green Energy Technology is showing 1 warning sign in our investment analysis , you should know about...

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.