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. We can see that Zhongbai Holdings Group Co.,Ltd. (SZSE:000759) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Zhongbai Holdings GroupLtd Carry?

As you can see below, Zhongbai Holdings GroupLtd had CN¥1.28b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have CN¥891.7m in cash offsetting this, leading to net debt of about CN¥384.8m.

How Strong Is Zhongbai Holdings GroupLtd's Balance Sheet?

We can see from the most recent balance sheet that Zhongbai Holdings GroupLtd had liabilities of CN¥6.49b falling due within a year, and liabilities of CN¥2.05b due beyond that. Offsetting this, it had CN¥891.7m in cash and CN¥662.6m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥6.99b.

Given this deficit is actually higher than the company's market capitalization of CN¥5.77b, we think shareholders really should watch Zhongbai Holdings GroupLtd's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Zhongbai Holdings GroupLtd'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, Zhongbai Holdings GroupLtd made a loss at the EBIT level, and saw its revenue drop to CN¥9.7b, which is a fall of 15%. That's not what we would hope to see.

Caveat Emptor

While Zhongbai Holdings GroupLtd'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¥422m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of CN¥603m. In the meantime, we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with Zhongbai Holdings GroupLtd (including 1 which is concerning) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.