Is China Greenland Broad Greenstate Group (HKG:1253) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, China Greenland Broad Greenstate Group Company Limited (HKG:1253) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for China Greenland Broad Greenstate Group

What Is China Greenland Broad Greenstate Group's Debt?

As you can see below, China Greenland Broad Greenstate Group had CN¥669.0m of debt at June 2024, down from CN¥812.1m a year prior. And it doesn't have much cash, so its net debt is about the same.

How Strong Is China Greenland Broad Greenstate Group's Balance Sheet?

We can see from the most recent balance sheet that China Greenland Broad Greenstate Group had liabilities of CN¥1.45b falling due within a year, and liabilities of CN¥463.5m due beyond that. On the other hand, it had cash of CN¥6.43m and CN¥597.3m worth of receivables due within a year. So it has liabilities totalling CN¥1.31b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the CN¥174.1m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, China Greenland Broad Greenstate Group would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is China Greenland Broad Greenstate Group's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year China Greenland Broad Greenstate Group wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to CN¥23m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months China Greenland Broad Greenstate Group produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping CN¥232m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost CN¥514m in the last year. So we're not very excited about owning this stock. Its too risky for us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 6 warning signs we've spotted with China Greenland Broad Greenstate Group (including 3 which make us uncomfortable) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.