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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, CSSC Offshore & Marine Engineering (Group) Company Limited (HKG:317) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does CSSC Offshore & Marine Engineering (Group) Carry?

The image below, which you can click on for greater detail, shows that at June 2024 CSSC Offshore & Marine Engineering (Group) had debt of CN¥5.64b, up from CN¥4.40b in one year. However, it does have CN¥11.7b in cash offsetting this, leading to net cash of CN¥6.02b.

A Look At CSSC Offshore & Marine Engineering (Group)'s Liabilities

The latest balance sheet data shows that CSSC Offshore & Marine Engineering (Group) had liabilities of CN¥21.2b due within a year, and liabilities of CN¥7.27b falling due after that. On the other hand, it had cash of CN¥11.7b and CN¥5.62b worth of receivables due within a year. So it has liabilities totalling CN¥11.2b more than its cash and near-term receivables, combined.

This deficit isn't so bad because CSSC Offshore & Marine Engineering (Group) is worth CN¥28.8b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, CSSC Offshore & Marine Engineering (Group) boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since CSSC Offshore & Marine Engineering (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.

Over 12 months, CSSC Offshore & Marine Engineering (Group) reported revenue of CN¥19b, which is a gain of 30%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is CSSC Offshore & Marine Engineering (Group)?

While CSSC Offshore & Marine Engineering (Group) lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥182m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. One positive is that CSSC Offshore & Marine Engineering (Group) is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. 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. For instance, we've identified 2 warning signs for CSSC Offshore & Marine Engineering (Group) that you should be aware of.

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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