We Think China Titans Energy Technology Group (HKG:2188) Has A Fair Chunk Of Debt

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.' 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 China Titans Energy Technology Group Co., Limited (HKG:2188) does use debt in its business. But is this debt a concern to shareholders?

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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for China Titans Energy Technology Group

What Is China Titans Energy Technology Group's Net Debt?

The image below, which you can click on for greater detail, shows that China Titans Energy Technology Group had debt of CN¥168.8m at the end of December 2020, a reduction from CN¥184.2m over a year. On the flip side, it has CN¥72.8m in cash leading to net debt of about CN¥96.0m.

A Look At China Titans Energy Technology Group's Liabilities

The latest balance sheet data shows that China Titans Energy Technology Group had liabilities of CN¥254.7m due within a year, and liabilities of CN¥66.8m falling due after that. Offsetting these obligations, it had cash of CN¥72.8m as well as receivables valued at CN¥290.8m due within 12 months. So it can boast CN¥42.1m more liquid assets than total liabilities.

This surplus suggests that China Titans Energy Technology Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 China Titans Energy Technology Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, China Titans Energy Technology Group made a loss at the EBIT level, and saw its revenue drop to CN¥276m, which is a fall of 8.5%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months China Titans Energy Technology Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CN¥27m 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 a profit would do more to inspire us to research the business more closely. 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. For example China Titans Energy Technology Group has 3 warning signs (and 1 which is significant) 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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