Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, BAIC BluePark New Energy Technology Co.,Ltd. (SHSE:600733) 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does BAIC BluePark New Energy TechnologyLtd Carry?

The chart below, which you can click on for greater detail, shows that BAIC BluePark New Energy TechnologyLtd had CN¥12.4b in debt in September 2024; about the same as the year before. However, because it has a cash reserve of CN¥3.72b, its net debt is less, at about CN¥8.66b.

A Look At BAIC BluePark New Energy TechnologyLtd's Liabilities

We can see from the most recent balance sheet that BAIC BluePark New Energy TechnologyLtd had liabilities of CN¥23.1b falling due within a year, and liabilities of CN¥7.22b due beyond that. On the other hand, it had cash of CN¥3.72b and CN¥9.00b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥17.6b.

While this might seem like a lot, it is not so bad since BAIC BluePark New Energy TechnologyLtd has a market capitalization of CN¥44.6b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine BAIC BluePark New Energy TechnologyLtd's ability to maintain a healthy balance sheet going forward. 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, BAIC BluePark New Energy TechnologyLtd reported revenue of CN¥15b, which is a gain of 13%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months BAIC BluePark New Energy TechnologyLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CN¥6.0b 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.5b in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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 BAIC BluePark New Energy TechnologyLtd's profit, revenue, and operating cashflow have changed over the last few years.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.