Is Beijing Jingyuntong Technology (SHSE:601908) A Risky Investment?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Beijing Jingyuntong Technology Co., Ltd. (SHSE:601908) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Beijing Jingyuntong Technology

What Is Beijing Jingyuntong Technology's Debt?

The chart below, which you can click on for greater detail, shows that Beijing Jingyuntong Technology had CN¥7.20b in debt in September 2024; about the same as the year before. However, it does have CN¥1.33b in cash offsetting this, leading to net debt of about CN¥5.87b.

How Healthy Is Beijing Jingyuntong Technology's Balance Sheet?

The latest balance sheet data shows that Beijing Jingyuntong Technology had liabilities of CN¥6.35b due within a year, and liabilities of CN¥5.07b falling due after that. Offsetting this, it had CN¥1.33b in cash and CN¥4.29b in receivables that were due within 12 months. So it has liabilities totalling CN¥5.81b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of CN¥7.92b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Beijing Jingyuntong Technology's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Beijing Jingyuntong Technology had a loss before interest and tax, and actually shrunk its revenue by 44%, to CN¥6.5b. To be frank that doesn't bode well.

Caveat Emptor

While Beijing Jingyuntong Technology's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable CN¥1.2b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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¥177m of cash over the last year. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Beijing Jingyuntong Technology that you should be aware of before investing here.

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.