Business-intelligence of Oriental Nations (SZSE:300166) Is Carrying A Fair Bit Of Debt

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.' 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 Business-intelligence of Oriental Nations Corporation Ltd. (SZSE:300166) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Business-intelligence of Oriental Nations

What Is Business-intelligence of Oriental Nations's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Business-intelligence of Oriental Nations had debt of CN¥978.0m, up from CN¥785.9m in one year. However, because it has a cash reserve of CN¥544.8m, its net debt is less, at about CN¥433.2m.

How Healthy Is Business-intelligence of Oriental Nations' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Business-intelligence of Oriental Nations had liabilities of CN¥1.17b due within 12 months and liabilities of CN¥438.3m due beyond that. Offsetting this, it had CN¥544.8m in cash and CN¥1.72b in receivables that were due within 12 months. So it actually has CN¥662.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Business-intelligence of Oriental Nations could probably pay off its debt with ease, as its balance sheet is far from stretched. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Business-intelligence of Oriental Nations can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Business-intelligence of Oriental Nations wasn't profitable at an EBIT level, but managed to grow its revenue by 4.3%, to CN¥2.4b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Business-intelligence of Oriental Nations had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CN¥468m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Business-intelligence of Oriental Nations is showing 1 warning sign in our investment analysis , you should know about...

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.