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 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. We can see that Jing-jin Electric Technologies Co.,Ltd. (SHSE:688280) does use debt in its business. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Jing-jin Electric TechnologiesLtd

What Is Jing-jin Electric TechnologiesLtd's Debt?

The image below, which you can click on for greater detail, shows that Jing-jin Electric TechnologiesLtd had debt of CN¥260.2m at the end of September 2023, a reduction from CN¥364.3m over a year. However, its balance sheet shows it holds CN¥487.7m in cash, so it actually has CN¥227.5m net cash.

How Strong Is Jing-jin Electric TechnologiesLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jing-jin Electric TechnologiesLtd had liabilities of CN¥1.03b due within 12 months and liabilities of CN¥338.9m due beyond that. On the other hand, it had cash of CN¥487.7m and CN¥395.0m worth of receivables due within a year. So it has liabilities totalling CN¥482.0m more than its cash and near-term receivables, combined.

Of course, Jing-jin Electric TechnologiesLtd has a market capitalization of CN¥3.94b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Jing-jin Electric TechnologiesLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Jing-jin Electric TechnologiesLtd 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, Jing-jin Electric TechnologiesLtd saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Jing-jin Electric TechnologiesLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Jing-jin Electric TechnologiesLtd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥547m and booked a CN¥419m accounting loss. Given it only has net cash of CN¥227.5m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Jing-jin Electric TechnologiesLtd has 2 warning signs we think you should be aware of.

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.