Warren Buffett famously said, '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. Importantly, Liaoning Oxiranchem,Inc. (SZSE:300082) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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 Liaoning OxiranchemInc's Debt?

As you can see below, Liaoning OxiranchemInc had CN¥1.63b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had CN¥286.2m in cash, and so its net debt is CN¥1.34b.

A Look At Liaoning OxiranchemInc's Liabilities

The latest balance sheet data shows that Liaoning OxiranchemInc had liabilities of CN¥2.07b due within a year, and liabilities of CN¥307.5m falling due after that. Offsetting this, it had CN¥286.2m in cash and CN¥1.04b in receivables that were due within 12 months. So its liabilities total CN¥1.04b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Liaoning OxiranchemInc has a market capitalization of CN¥5.17b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Liaoning OxiranchemInc 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, Liaoning OxiranchemInc made a loss at the EBIT level, and saw its revenue drop to CN¥3.8b, which is a fall of 9.9%. We would much prefer see growth.

Caveat Emptor

Importantly, Liaoning OxiranchemInc had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥232m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥549m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Liaoning OxiranchemInc , and understanding them should be part of your investment process.

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.