Is Beijing BDStar Navigation (SZSE:002151) Using Too Much Debt?

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.' 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, Beijing BDStar Navigation Co., Ltd. (SZSE:002151) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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. 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.

View our latest analysis for Beijing BDStar Navigation

What Is Beijing BDStar Navigation's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Beijing BDStar Navigation had CN¥65.4m of debt in June 2024, down from CN¥523.0m, one year before. But on the other hand it also has CN¥1.76b in cash, leading to a CN¥1.69b net cash position.

How Strong Is Beijing BDStar Navigation's Balance Sheet?

According to the last reported balance sheet, Beijing BDStar Navigation had liabilities of CN¥669.7m due within 12 months, and liabilities of CN¥156.7m due beyond 12 months. Offsetting these obligations, it had cash of CN¥1.76b as well as receivables valued at CN¥979.3m due within 12 months. So it can boast CN¥1.91b more liquid assets than total liabilities.

This surplus suggests that Beijing BDStar Navigation is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Beijing BDStar Navigation boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Beijing BDStar Navigation's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Beijing BDStar Navigation had a loss before interest and tax, and actually shrunk its revenue by 38%, to CN¥2.7b. That makes us nervous, to say the least.

So How Risky Is Beijing BDStar Navigation?

While Beijing BDStar Navigation lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥86m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. For instance, we've identified 1 warning sign for Beijing BDStar Navigation that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.