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 Kuangshun Photosensitivity New-Material Stock Co., Ltd. (SZSE:300537) makes use of debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Jiangsu Kuangshun Photosensitivity New-Material Stock
What Is Jiangsu Kuangshun Photosensitivity New-Material Stock's Net Debt?
The image below, which you can click on for greater detail, shows that Jiangsu Kuangshun Photosensitivity New-Material Stock had debt of CN¥149.0m at the end of September 2023, a reduction from CN¥173.3m over a year. But on the other hand it also has CN¥153.0m in cash, leading to a CN¥3.98m net cash position.
A Look At Jiangsu Kuangshun Photosensitivity New-Material Stock's Liabilities
Zooming in on the latest balance sheet data, we can see that Jiangsu Kuangshun Photosensitivity New-Material Stock had liabilities of CN¥445.5m due within 12 months and liabilities of CN¥13.7m due beyond that. Offsetting this, it had CN¥153.0m in cash and CN¥322.1m in receivables that were due within 12 months. So it can boast CN¥15.8m more liquid assets than total liabilities.
Having regard to Jiangsu Kuangshun Photosensitivity New-Material Stock's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥3.77b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Jiangsu Kuangshun Photosensitivity New-Material Stock has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jiangsu Kuangshun Photosensitivity New-Material Stock'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.
Over 12 months, Jiangsu Kuangshun Photosensitivity New-Material Stock made a loss at the EBIT level, and saw its revenue drop to CN¥471m, which is a fall of 16%. We would much prefer see growth.
So How Risky Is Jiangsu Kuangshun Photosensitivity New-Material Stock?
While Jiangsu Kuangshun Photosensitivity New-Material Stock lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥16m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre 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 Jiangsu Kuangshun Photosensitivity New-Material Stock (1 makes us a bit uncomfortable) you should be aware of.
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.