Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Jiangsu Haili Wind Power Equipment Technology Co., Ltd. (SZSE:301155) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Jiangsu Haili Wind Power Equipment Technology's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Jiangsu Haili Wind Power Equipment Technology had CN¥751.1m of debt, an increase on CN¥423.7m, over one year. However, it does have CN¥602.6m in cash offsetting this, leading to net debt of about CN¥148.5m.

How Strong Is Jiangsu Haili Wind Power Equipment Technology's Balance Sheet?

According to the last reported balance sheet, Jiangsu Haili Wind Power Equipment Technology had liabilities of CN¥2.21b due within 12 months, and liabilities of CN¥77.4m due beyond 12 months. Offsetting this, it had CN¥602.6m in cash and CN¥1.67b in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Jiangsu Haili Wind Power Equipment Technology'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¥10.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, Jiangsu Haili Wind Power Equipment Technology has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jiangsu Haili Wind Power Equipment Technology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Jiangsu Haili Wind Power Equipment Technology had a loss before interest and tax, and actually shrunk its revenue by 34%, to CN¥1.3b. To be frank that doesn't bode well.

Caveat Emptor

While Jiangsu Haili Wind Power Equipment Technology's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at CN¥196m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥1.0b of cash over the last year. So suffice it to say we consider the stock very 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. Case in point: We've spotted 1 warning sign for Jiangsu Haili Wind Power Equipment Technology you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.