Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Heilongjiang Interchina Water Treatment Co.,Ltd (SHSE:600187) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Heilongjiang Interchina Water TreatmentLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Heilongjiang Interchina Water TreatmentLtd had CN¥136.2m of debt in March 2024, down from CN¥170.2m, one year before. But it also has CN¥416.1m in cash to offset that, meaning it has CN¥279.9m net cash.

How Healthy Is Heilongjiang Interchina Water TreatmentLtd's Balance Sheet?

The latest balance sheet data shows that Heilongjiang Interchina Water TreatmentLtd had liabilities of CN¥199.3m due within a year, and liabilities of CN¥205.7m falling due after that. Offsetting these obligations, it had cash of CN¥416.1m as well as receivables valued at CN¥439.9m due within 12 months. So it actually has CN¥451.1m more liquid assets than total liabilities.

This surplus suggests that Heilongjiang Interchina Water TreatmentLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Heilongjiang Interchina Water TreatmentLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Heilongjiang Interchina Water TreatmentLtd'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.

Over 12 months, Heilongjiang Interchina Water TreatmentLtd made a loss at the EBIT level, and saw its revenue drop to CN¥193m, which is a fall of 29%. To be frank that doesn't bode well.

So How Risky Is Heilongjiang Interchina Water TreatmentLtd?

While Heilongjiang Interchina Water TreatmentLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥49m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. To that end, you should learn about the 3 warning signs we've spotted with Heilongjiang Interchina Water TreatmentLtd (including 2 which are a bit unpleasant) .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com