Is Angang Steel (HKG:347) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Angang Steel Company Limited (HKG:347) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

How Much Debt Does Angang Steel Carry?

The image below, which you can click on for greater detail, shows that at September 2025 Angang Steel had debt of CN¥12.4b, up from CN¥8.65b in one year. However, because it has a cash reserve of CN¥3.67b, its net debt is less, at about CN¥8.76b.

A Look At Angang Steel's Liabilities

According to the last reported balance sheet, Angang Steel had liabilities of CN¥45.1b due within 12 months, and liabilities of CN¥5.58b due beyond 12 months. On the other hand, it had cash of CN¥3.67b and CN¥5.48b worth of receivables due within a year. So it has liabilities totalling CN¥41.5b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the CN¥22.4b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Angang Steel 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 ultimately the future profitability of the business will decide if Angang Steel can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Angang Steel

Over 12 months, Angang Steel made a loss at the EBIT level, and saw its revenue drop to CN¥99b, which is a fall of 9.1%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Angang Steel produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CN¥4.8b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of CN¥2.2b over the last twelve months. That means it's on the risky side of things. For riskier companies like Angang Steel I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.