Does Zhejiang Shengyang Science and TechnologyLtd (SHSE:603703) Have A Healthy Balance Sheet?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Zhejiang Shengyang Science and Technology Co.,Ltd. (SHSE:603703) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Zhejiang Shengyang Science and TechnologyLtd

How Much Debt Does Zhejiang Shengyang Science and TechnologyLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Zhejiang Shengyang Science and TechnologyLtd had CN¥718.8m of debt in June 2024, down from CN¥845.8m, one year before. On the flip side, it has CN¥310.4m in cash leading to net debt of about CN¥408.4m.

A Look At Zhejiang Shengyang Science and TechnologyLtd's Liabilities

According to the last reported balance sheet, Zhejiang Shengyang Science and TechnologyLtd had liabilities of CN¥952.5m due within 12 months, and liabilities of CN¥25.2m due beyond 12 months. Offsetting these obligations, it had cash of CN¥310.4m as well as receivables valued at CN¥265.5m due within 12 months. So it has liabilities totalling CN¥401.8m more than its cash and near-term receivables, combined.

Given Zhejiang Shengyang Science and TechnologyLtd has a market capitalization of CN¥4.16b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Zhejiang Shengyang Science and TechnologyLtd 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, Zhejiang Shengyang Science and TechnologyLtd made a loss at the EBIT level, and saw its revenue drop to CN¥658m, which is a fall of 14%. That's not what we would hope to see.

Caveat Emptor

While Zhejiang Shengyang Science and TechnologyLtd'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 CN¥485k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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¥91m of cash over the last year. So suffice it to say we do consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Zhejiang Shengyang Science and TechnologyLtd is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.