Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Rising Nonferrous Metals Share Co.,Ltd. (SHSE:600259) makes use of 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. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Rising Nonferrous Metals ShareLtd's Net Debt?

As you can see below, Rising Nonferrous Metals ShareLtd had CN¥2.09b of debt at September 2024, down from CN¥2.70b a year prior. However, it also had CN¥846.2m in cash, and so its net debt is CN¥1.24b.

How Strong Is Rising Nonferrous Metals ShareLtd's Balance Sheet?

The latest balance sheet data shows that Rising Nonferrous Metals ShareLtd had liabilities of CN¥3.41b due within a year, and liabilities of CN¥1.34b falling due after that. Offsetting these obligations, it had cash of CN¥846.2m as well as receivables valued at CN¥640.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥3.26b.

While this might seem like a lot, it is not so bad since Rising Nonferrous Metals ShareLtd has a market capitalization of CN¥9.82b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Rising Nonferrous Metals ShareLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Rising Nonferrous Metals ShareLtd had a loss before interest and tax, and actually shrunk its revenue by 30%, to CN¥14b. To be frank that doesn't bode well.

Caveat Emptor

While Rising Nonferrous Metals ShareLtd's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost CN¥141m at the EBIT level. 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. For example, we would not want to see a repeat of last year's loss of CN¥239m. So we do think this stock is quite risky. For riskier companies like Rising Nonferrous Metals ShareLtd I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

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