Goldenmax International Group (SZSE:002636) Has Debt But No Earnings; Should You Worry?

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.' 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. We note that Goldenmax International Group Ltd. (SZSE:002636) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Goldenmax International Group

What Is Goldenmax International Group's Debt?

The image below, which you can click on for greater detail, shows that Goldenmax International Group had debt of CN¥45.0m at the end of March 2024, a reduction from CN¥65.0m over a year. However, it does have CN¥1.43b in cash offsetting this, leading to net cash of CN¥1.39b.

A Look At Goldenmax International Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Goldenmax International Group had liabilities of CN¥2.47b due within 12 months and liabilities of CN¥67.6m due beyond that. On the other hand, it had cash of CN¥1.43b and CN¥1.21b worth of receivables due within a year. So it can boast CN¥99.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Goldenmax International Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Goldenmax International Group has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Goldenmax International Group'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.

Over 12 months, Goldenmax International Group saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is Goldenmax International Group?

Although Goldenmax International Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥186m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. We've identified 2 warning signs with Goldenmax International Group (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.

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