Is Beijing Jingyuntong Technology (SHSE:601908) Using Too Much Debt?

Warren Buffett famously said, '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. Importantly, Beijing Jingyuntong Technology Co., Ltd. (SHSE:601908) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Beijing Jingyuntong Technology

How Much Debt Does Beijing Jingyuntong Technology Carry?

As you can see below, Beijing Jingyuntong Technology had CN¥7.20b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had CN¥1.33b in cash, and so its net debt is CN¥5.87b.

How Strong Is Beijing Jingyuntong Technology's Balance Sheet?

According to the last reported balance sheet, Beijing Jingyuntong Technology had liabilities of CN¥6.35b due within 12 months, and liabilities of CN¥5.07b due beyond 12 months. Offsetting this, it had CN¥1.33b in cash and CN¥4.29b in receivables that were due within 12 months. So its liabilities total CN¥5.81b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of CN¥6.42b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Beijing Jingyuntong Technology 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.

Over 12 months, Beijing Jingyuntong Technology made a loss at the EBIT level, and saw its revenue drop to CN¥6.5b, which is a fall of 44%. That makes us nervous, to say the least.

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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. 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. 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. For example, we've discovered 2 warning signs for Beijing Jingyuntong Technology that you should be aware of before investing here.

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.