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. As with many other companies Guangzhou Guangri Stock Co.,Ltd. (SHSE:600894) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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 Guangzhou Guangri StockLtd Carry?
You can click the graphic below for the historical numbers, but it shows that Guangzhou Guangri StockLtd had CN¥19.6m of debt in September 2024, down from CN¥64.7m, one year before. However, its balance sheet shows it holds CN¥4.79b in cash, so it actually has CN¥4.77b net cash.
A Look At Guangzhou Guangri StockLtd's Liabilities
We can see from the most recent balance sheet that Guangzhou Guangri StockLtd had liabilities of CN¥5.62b falling due within a year, and liabilities of CN¥171.4m due beyond that. Offsetting these obligations, it had cash of CN¥4.79b as well as receivables valued at CN¥2.73b due within 12 months. So it can boast CN¥1.73b more liquid assets than total liabilities.
This excess liquidity suggests that Guangzhou Guangri StockLtd is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Guangzhou Guangri StockLtd boasts net cash, 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 Guangzhou Guangri StockLtd'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 Guangzhou Guangri StockLtd's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.
So How Risky Is Guangzhou Guangri StockLtd?
While Guangzhou Guangri StockLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥807m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Guangzhou Guangri StockLtd 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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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.
