Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Shanghai REFIRE Group Limited (HKG:2570) does carry debt. But should shareholders be worried about its use of debt?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Shanghai REFIRE Group's Net Debt?
The image below, which you can click on for greater detail, shows that at June 2025 Shanghai REFIRE Group had debt of CN¥1.62b, up from CN¥1.18b in one year. However, it also had CN¥1.18b in cash, and so its net debt is CN¥434.7m.
A Look At Shanghai REFIRE Group's Liabilities
According to the last reported balance sheet, Shanghai REFIRE Group had liabilities of CN¥2.41b due within 12 months, and liabilities of CN¥589.1m due beyond 12 months. Offsetting these obligations, it had cash of CN¥1.18b as well as receivables valued at CN¥1.93b due within 12 months. So it can boast CN¥117.6m more liquid assets than total liabilities.
This state of affairs indicates that Shanghai REFIRE Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥9.73b company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Shanghai REFIRE Group 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.
Check out our latest analysis for Shanghai REFIRE Group
Over 12 months, Shanghai REFIRE Group made a loss at the EBIT level, and saw its revenue drop to CN¥637m, which is a fall of 18%. That's not what we would hope to see.
Caveat Emptor
Not only did Shanghai REFIRE Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CN¥586m 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. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. 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. Case in point: We've spotted 2 warning signs for Shanghai REFIRE Group you should be aware of.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About SEHK:2570
Shanghai REFIRE Group
An investment holding company, engages in the research, design, development, manufacture, and sale of hydrogen fuel cell systems, hydrogen production systems, and related components in Mainland China and internationally.
Excellent balance sheet with very low risk.
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