Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Jiangsu Nonghua Intelligent Agriculture Technology Co.ltd (SZSE:000816) makes use of debt. But the real question is whether this debt is making the company risky.

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. 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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Jiangsu Nonghua Intelligent Agriculture Technologyltd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Jiangsu Nonghua Intelligent Agriculture Technologyltd had CN¥61.8m of debt, an increase on CN¥46.4m, over one year. But it also has CN¥306.9m in cash to offset that, meaning it has CN¥245.1m net cash.

How Strong Is Jiangsu Nonghua Intelligent Agriculture Technologyltd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jiangsu Nonghua Intelligent Agriculture Technologyltd had liabilities of CN¥803.2m due within 12 months and liabilities of CN¥123.3m due beyond that. On the other hand, it had cash of CN¥306.9m and CN¥170.3m worth of receivables due within a year. So it has liabilities totalling CN¥449.4m more than its cash and near-term receivables, combined.

Since publicly traded Jiangsu Nonghua Intelligent Agriculture Technologyltd shares are worth a total of CN¥3.66b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Jiangsu Nonghua Intelligent Agriculture Technologyltd 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 Jiangsu Nonghua Intelligent Agriculture Technologyltd'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.

In the last year Jiangsu Nonghua Intelligent Agriculture Technologyltd wasn't profitable at an EBIT level, but managed to grow its revenue by 7.0%, to CN¥1.3b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Jiangsu Nonghua Intelligent Agriculture Technologyltd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Jiangsu Nonghua Intelligent Agriculture Technologyltd lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥31m and booked a CN¥67m accounting loss. But the saving grace is the CN¥245.1m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. For riskier companies like Jiangsu Nonghua Intelligent Agriculture Technologyltd 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.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.