Is Jiangsu Wanlin Modern Logistics (SHSE:603117) Using Too Much 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.' 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, Jiangsu Wanlin Modern Logistics Co., Ltd. (SHSE:603117) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Jiangsu Wanlin Modern Logistics

What Is Jiangsu Wanlin Modern Logistics's Net Debt?

The image below, which you can click on for greater detail, shows that Jiangsu Wanlin Modern Logistics had debt of CN¥39.9m at the end of September 2024, a reduction from CN¥81.2m over a year. On the flip side, it has CN¥13.2m in cash leading to net debt of about CN¥26.6m.

A Look At Jiangsu Wanlin Modern Logistics' Liabilities

According to the last reported balance sheet, Jiangsu Wanlin Modern Logistics had liabilities of CN¥325.3m due within 12 months, and liabilities of CN¥77.8m due beyond 12 months. Offsetting these obligations, it had cash of CN¥13.2m as well as receivables valued at CN¥164.0m due within 12 months. So it has liabilities totalling CN¥225.9m more than its cash and near-term receivables, combined.

Since publicly traded Jiangsu Wanlin Modern Logistics shares are worth a total of CN¥4.14b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Jiangsu Wanlin Modern Logistics has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jiangsu Wanlin Modern Logistics'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 Jiangsu Wanlin Modern Logistics had a loss before interest and tax, and actually shrunk its revenue by 29%, to CN¥299m. To be frank that doesn't bode well.

Caveat Emptor

While Jiangsu Wanlin Modern Logistics's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at CN¥17m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of CN¥206m into a profit. In the meantime, we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Jiangsu Wanlin Modern Logistics has 1 warning sign we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.