David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, Fujian Aonong Biological Technology Group Incorporation Limited (SHSE:603363) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Fujian Aonong Biological Technology Group Incorporation

What Is Fujian Aonong Biological Technology Group Incorporation's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Fujian Aonong Biological Technology Group Incorporation had CN¥7.34b of debt in September 2023, down from CN¥7.65b, one year before. However, it also had CN¥303.5m in cash, and so its net debt is CN¥7.04b.

How Strong Is Fujian Aonong Biological Technology Group Incorporation's Balance Sheet?

The latest balance sheet data shows that Fujian Aonong Biological Technology Group Incorporation had liabilities of CN¥11.6b due within a year, and liabilities of CN¥3.23b falling due after that. Offsetting this, it had CN¥303.5m in cash and CN¥1.03b in receivables that were due within 12 months. So it has liabilities totalling CN¥13.5b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the CN¥6.89b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Fujian Aonong Biological Technology Group Incorporation would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Fujian Aonong Biological Technology Group Incorporation can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Fujian Aonong Biological Technology Group Incorporation reported revenue of CN¥21b, which is a gain of 6.3%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Fujian Aonong Biological Technology Group Incorporation produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CN¥1.4b at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of CN¥1.8b didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Fujian Aonong Biological Technology Group Incorporation's profit, revenue, and operating cashflow have changed over the last few years.

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.