Shanghai International Airport (SHSE:600009) 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 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, Shanghai International Airport Co., Ltd. (SHSE:600009) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for Shanghai International Airport

How Much Debt Does Shanghai International Airport Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Shanghai International Airport had CN¥3.20b of debt, an increase on CN¥2.79b, over one year. But it also has CN¥13.3b in cash to offset that, meaning it has CN¥10.1b net cash.

A Look At Shanghai International Airport's Liabilities

Zooming in on the latest balance sheet data, we can see that Shanghai International Airport had liabilities of CN¥9.73b due within 12 months and liabilities of CN¥17.6b due beyond that. On the other hand, it had cash of CN¥13.3b and CN¥3.65b worth of receivables due within a year. So its liabilities total CN¥10.4b more than the combination of its cash and short-term receivables.

Of course, Shanghai International Airport has a titanic market capitalization of CN¥86.7b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Shanghai International Airport boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Shanghai International Airport can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Shanghai International Airport reported revenue of CN¥9.3b, which is a gain of 49%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Shanghai International Airport?

Although Shanghai International Airport had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥1.0b. 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. The good news for Shanghai International Airport shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. For riskier companies like Shanghai International Airport I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.