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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Chengdu CORPRO Technology Co.,Ltd. (SZSE:300101) does carry debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for Chengdu CORPRO TechnologyLtd
What Is Chengdu CORPRO TechnologyLtd's Debt?
The image below, which you can click on for greater detail, shows that Chengdu CORPRO TechnologyLtd had debt of CN„268.0m at the end of June 2024, a reduction from CN„315.0m over a year. However, because it has a cash reserve of CN„250.8m, its net debt is less, at about CN„17.2m.
A Look At Chengdu CORPRO TechnologyLtd's Liabilities
The latest balance sheet data shows that Chengdu CORPRO TechnologyLtd had liabilities of CN„728.0m due within a year, and liabilities of CN„35.3m falling due after that. On the other hand, it had cash of CN„250.8m and CN„1.15b worth of receivables due within a year. So it actually has CN„641.5m more liquid assets than total liabilities.
This surplus suggests that Chengdu CORPRO TechnologyLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. But either way, Chengdu CORPRO TechnologyLtd has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Chengdu CORPRO 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.
In the last year Chengdu CORPRO TechnologyLtd had a loss before interest and tax, and actually shrunk its revenue by 31%, to CN„771m. To be frank that doesn't bode well.
Caveat Emptor
Not only did Chengdu CORPRO TechnologyLtd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CN„52m at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. And on top of that, it booked free cash flow of CN„1.1m and profit of CN„11m over the last year. So it seems too risky for our taste. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Chengdu CORPRO TechnologyLtd has 3 warning signs we think 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.
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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.
About SZSE:300101
Chengdu CORPRO TechnologyLtd
Provides satellite navigation components and terminals.
Adequate balance sheet low.
