Is Transportation Telecommunication & Information DevelopmentLtd.Zhejiang (SZSE:300469) Weighed On By Its Debt Load?

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. As with many other companies Transportation Telecommunication & Information Development Inc.Ltd.Zhejiang (SZSE:300469) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang

What Is Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's Debt?

The image below, which you can click on for greater detail, shows that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang had debt of CN¥193.0m at the end of September 2024, a reduction from CN¥309.4m over a year. However, its balance sheet shows it holds CN¥331.7m in cash, so it actually has CN¥138.7m net cash.

How Healthy Is Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's Balance Sheet?

The latest balance sheet data shows that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang had liabilities of CN¥486.3m due within a year, and liabilities of CN¥78.8m falling due after that. Offsetting this, it had CN¥331.7m in cash and CN¥162.6m in receivables that were due within 12 months. So its liabilities total CN¥70.7m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥7.01b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Transportation Telecommunication & Information DevelopmentLtd.Zhejiang also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Transportation Telecommunication & Information DevelopmentLtd.Zhejiang 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.

In the last year Transportation Telecommunication & Information DevelopmentLtd.Zhejiang had a loss before interest and tax, and actually shrunk its revenue by 2.2%, to CN¥265m. That's not what we would hope to see.

So How Risky Is Transportation Telecommunication & Information DevelopmentLtd.Zhejiang?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Transportation Telecommunication & Information DevelopmentLtd.Zhejiang had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥165m of cash and made a loss of CN¥184m. But at least it has CN¥138.7m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Transportation Telecommunication & Information DevelopmentLtd.Zhejiang has 2 warning signs we think you should be aware of.

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.