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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that China CSSC Holdings Limited (SHSE:600150) 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. If things get really bad, the lenders can take control of the business. 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.

View our latest analysis for China CSSC Holdings

What Is China CSSC Holdings's Net Debt?

As you can see below, China CSSC Holdings had CN¥20.3b of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has CN¥55.2b in cash to offset that, meaning it has CN¥34.9b net cash.

How Strong Is China CSSC Holdings' Balance Sheet?

We can see from the most recent balance sheet that China CSSC Holdings had liabilities of CN¥99.9b falling due within a year, and liabilities of CN¥12.5b due beyond that. Offsetting these obligations, it had cash of CN¥55.2b as well as receivables valued at CN¥10.9b due within 12 months. So its liabilities total CN¥46.4b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because China CSSC Holdings is worth a massive CN¥123.8b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, China CSSC Holdings 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 future earnings, more than anything, that will determine China CSSC Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year China CSSC Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to CN¥63b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is China CSSC Holdings?

Although China CSSC Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥174m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. For instance, we've identified 2 warning signs for China CSSC Holdings that you should be aware of.

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.