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. We can see that Jiajia Food Group Co.,Ltd (SZSE:002650) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Jiajia Food GroupLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Jiajia Food GroupLtd had CN¥180.2m of debt, an increase on CN¥148.2m, over one year. But on the other hand it also has CN¥233.7m in cash, leading to a CN¥53.5m net cash position.

How Strong Is Jiajia Food GroupLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jiajia Food GroupLtd had liabilities of CN¥416.0m due within 12 months and liabilities of CN¥76.8m due beyond that. Offsetting this, it had CN¥233.7m in cash and CN¥122.0m in receivables that were due within 12 months. So its liabilities total CN¥137.1m more than the combination of its cash and short-term receivables.

Of course, Jiajia Food GroupLtd has a market capitalization of CN¥4.63b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Jiajia Food GroupLtd 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 Jiajia Food GroupLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Jiajia Food GroupLtd had a loss before interest and tax, and actually shrunk its revenue by 22%, to CN¥1.3b. To be frank that doesn't bode well.

So How Risky Is Jiajia Food GroupLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Jiajia Food GroupLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥126m of cash and made a loss of CN¥234m. However, it has net cash of CN¥53.5m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Jiajia Food GroupLtd .

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.