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.' 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. We can see that Zhejiang Jingxing Paper Joint Stock Co., Ltd. (SZSE:002067) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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 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 examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Zhejiang Jingxing Paper
How Much Debt Does Zhejiang Jingxing Paper Carry?
You can click the graphic below for the historical numbers, but it shows that as of September 2023 Zhejiang Jingxing Paper had CN¥1.77b of debt, an increase on CN¥1.56b, over one year. However, it also had CN¥1.38b in cash, and so its net debt is CN¥388.2m.
A Look At Zhejiang Jingxing Paper's Liabilities
The latest balance sheet data shows that Zhejiang Jingxing Paper had liabilities of CN¥1.56b due within a year, and liabilities of CN¥1.24b falling due after that. Offsetting this, it had CN¥1.38b in cash and CN¥894.3m in receivables that were due within 12 months. So it has liabilities totalling CN¥525.3m more than its cash and near-term receivables, combined.
Given Zhejiang Jingxing Paper has a market capitalization of CN¥4.50b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is Zhejiang Jingxing Paper's earnings that will influence how the balance sheet holds up in the future. 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.
In the last year Zhejiang Jingxing Paper had a loss before interest and tax, and actually shrunk its revenue by 9.8%, to CN¥5.7b. That's not what we would hope to see.
Caveat Emptor
Importantly, Zhejiang Jingxing Paper had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥11m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CN¥55m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. Be aware that Zhejiang Jingxing Paper is showing 2 warning signs in our investment analysis , and 1 of those is significant...
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.
