Health Check: How Prudently Does Beijing Oriental Jicheng (SZSE:002819) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that Beijing Oriental Jicheng Co., Ltd. (SZSE:002819) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

See our latest analysis for Beijing Oriental Jicheng

What Is Beijing Oriental Jicheng's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Beijing Oriental Jicheng had debt of CN¥72.6m, up from CN¥57.1m in one year. However, its balance sheet shows it holds CN¥1.52b in cash, so it actually has CN¥1.45b net cash.

How Strong Is Beijing Oriental Jicheng's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Beijing Oriental Jicheng had liabilities of CN¥1.32b due within 12 months and liabilities of CN¥72.3m due beyond that. On the other hand, it had cash of CN¥1.52b and CN¥1.79b worth of receivables due within a year. So it actually has CN¥1.91b more liquid assets than total liabilities.

This excess liquidity is a great indication that Beijing Oriental Jicheng's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Beijing Oriental Jicheng boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Beijing Oriental Jicheng's earnings that will influence how the balance sheet holds up in the future. 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, Beijing Oriental Jicheng 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 Beijing Oriental Jicheng?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Beijing Oriental Jicheng had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥206m and booked a CN¥80m accounting loss. Given it only has net cash of CN¥1.45b, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Beijing Oriental Jicheng's profit, revenue, and operating cashflow have changed over the last few years.

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.

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