We Think Chengdu CORPRO TechnologyLtd (SZSE:300101) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Chengdu CORPRO Technology Co.,Ltd. (SZSE:300101) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Chengdu CORPRO TechnologyLtd

What Is Chengdu CORPRO TechnologyLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Chengdu CORPRO TechnologyLtd had CN¥314.8m of debt, an increase on CN¥280.0m, over one year. However, it also had CN¥241.4m in cash, and so its net debt is CN¥73.4m.

How Healthy Is Chengdu CORPRO TechnologyLtd's Balance Sheet?

The latest balance sheet data shows that Chengdu CORPRO TechnologyLtd had liabilities of CN¥730.5m due within a year, and liabilities of CN¥36.8m falling due after that. On the other hand, it had cash of CN¥241.4m and CN¥1.18b worth of receivables due within a year. So it can boast CN¥653.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Chengdu CORPRO TechnologyLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. 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 it is Chengdu CORPRO TechnologyLtd'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.

In the last year Chengdu CORPRO TechnologyLtd had a loss before interest and tax, and actually shrunk its revenue by 32%, to CN¥799m. That makes us nervous, to say the least.

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¥6.9m 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. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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 3 warning signs with Chengdu CORPRO TechnologyLtd , 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.