Anhui Landun Photoelectron (SZSE:300862) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 note that Anhui Landun Photoelectron Co., Ltd. (SZSE:300862) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Anhui Landun Photoelectron

What Is Anhui Landun Photoelectron's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Anhui Landun Photoelectron had CN¥210.8m of debt, an increase on CN¥95.1m, over one year. However, its balance sheet shows it holds CN¥314.3m in cash, so it actually has CN¥103.5m net cash.

A Look At Anhui Landun Photoelectron's Liabilities

According to the last reported balance sheet, Anhui Landun Photoelectron had liabilities of CN¥404.8m due within 12 months, and liabilities of CN¥181.9m due beyond 12 months. Offsetting these obligations, it had cash of CN¥314.3m as well as receivables valued at CN¥687.2m due within 12 months. So it actually has CN¥414.8m more liquid assets than total liabilities.

This surplus suggests that Anhui Landun Photoelectron has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Anhui Landun Photoelectron boasts net cash, 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 Anhui Landun Photoelectron 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.

Over 12 months, Anhui Landun Photoelectron made a loss at the EBIT level, and saw its revenue drop to CN¥565m, which is a fall of 21%. That makes us nervous, to say the least.

So How Risky Is Anhui Landun Photoelectron?

While Anhui Landun Photoelectron lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥16m. 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. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Anhui Landun Photoelectron has 4 warning signs (and 2 which can't be ignored) we think you should know about.

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.