Is Y.U.D.Yangtze River Investment IndustryLtd (SHSE:600119) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Y.U.D.Yangtze River Investment Industry Co.,Ltd. (SHSE:600119) does use debt in its business. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Y.U.D.Yangtze River Investment IndustryLtd

What Is Y.U.D.Yangtze River Investment IndustryLtd's Net Debt?

As you can see below, Y.U.D.Yangtze River Investment IndustryLtd had CN¥174.9m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has CN¥338.7m in cash to offset that, meaning it has CN¥163.8m net cash.

How Healthy Is Y.U.D.Yangtze River Investment IndustryLtd's Balance Sheet?

The latest balance sheet data shows that Y.U.D.Yangtze River Investment IndustryLtd had liabilities of CN¥313.5m due within a year, and liabilities of CN¥9.00m falling due after that. On the other hand, it had cash of CN¥338.7m and CN¥115.5m worth of receivables due within a year. So it can boast CN¥131.6m more liquid assets than total liabilities.

This surplus suggests that Y.U.D.Yangtze River Investment IndustryLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Y.U.D.Yangtze River Investment IndustryLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Y.U.D.Yangtze River Investment IndustryLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Y.U.D.Yangtze River Investment IndustryLtd had a loss before interest and tax, and actually shrunk its revenue by 27%, to CN¥647m. That makes us nervous, to say the least.

So How Risky Is Y.U.D.Yangtze River Investment IndustryLtd?

Although Y.U.D.Yangtze River Investment IndustryLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥111m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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 Y.U.D.Yangtze River Investment IndustryLtd's profit, revenue, and operating cashflow have changed over the last few years.

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.