Is JinXianDai Information IndustryLtd (SZSE:300830) Weighed On By Its Debt Load?

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 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, JinXianDai Information Industry Co.,Ltd. (SZSE:300830) does carry debt. But should shareholders be worried about its use of debt?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for JinXianDai Information IndustryLtd

How Much Debt Does JinXianDai Information IndustryLtd Carry?

The image below, which you can click on for greater detail, shows that at September 2024 JinXianDai Information IndustryLtd had debt of CN¥194.0m, up from none in one year. But on the other hand it also has CN¥233.8m in cash, leading to a CN¥39.8m net cash position.

A Look At JinXianDai Information IndustryLtd's Liabilities

We can see from the most recent balance sheet that JinXianDai Information IndustryLtd had liabilities of CN¥109.4m falling due within a year, and liabilities of CN¥204.2m due beyond that. On the other hand, it had cash of CN¥233.8m and CN¥591.0m worth of receivables due within a year. So it can boast CN¥511.2m more liquid assets than total liabilities.

This surplus suggests that JinXianDai Information IndustryLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that JinXianDai Information IndustryLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since JinXianDai Information IndustryLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, JinXianDai Information IndustryLtd made a loss at the EBIT level, and saw its revenue drop to CN¥464m, which is a fall of 17%. We would much prefer see growth.

So How Risky Is JinXianDai Information IndustryLtd?

Although JinXianDai Information IndustryLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥22m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for JinXianDai Information IndustryLtd (2 are potentially serious!) that you should be aware of before investing here.

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.