Is Business-intelligence of Oriental Nations (SZSE:300166) 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.' 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. We can see that Business-intelligence of Oriental Nations Corporation Ltd. (SZSE:300166) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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?

As you can see below, at the end of March 2024, Business-intelligence of Oriental Nations had CN¥893.5m of debt, up from CN¥751.9m a year ago. Click the image for more detail. However, it also had CN¥676.7m in cash, and so its net debt is CN¥216.7m.

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

The latest balance sheet data shows that Business-intelligence of Oriental Nations had liabilities of CN¥1.20b due within a year, and liabilities of CN¥444.8m falling due after that. Offsetting these obligations, it had cash of CN¥676.7m as well as receivables valued at CN¥2.05b due within 12 months. So it can boast CN¥1.08b 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Business-intelligence of Oriental Nations's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Business-intelligence of Oriental Nations reported revenue of CN¥2.4b, which is a gain of 3.9%, although it did not report any earnings before interest and tax. 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¥436m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. For riskier companies like Business-intelligence of Oriental Nations I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.