David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Beijing Jingcheng Machinery Electric Company Limited (HKG:187) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Beijing Jingcheng Machinery Electric

How Much Debt Does Beijing Jingcheng Machinery Electric Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Beijing Jingcheng Machinery Electric had CN¥290.0m of debt, an increase on CN¥170.0m, over one year. But it also has CN¥429.5m in cash to offset that, meaning it has CN¥139.5m net cash.

A Look At Beijing Jingcheng Machinery Electric's Liabilities

The latest balance sheet data shows that Beijing Jingcheng Machinery Electric had liabilities of CN¥896.6m due within a year, and liabilities of CN¥672.9m falling due after that. On the other hand, it had cash of CN¥429.5m and CN¥614.5m worth of receivables due within a year. So it has liabilities totalling CN¥525.6m more than its cash and near-term receivables, combined.

Of course, Beijing Jingcheng Machinery Electric has a market capitalization of CN¥4.42b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Beijing Jingcheng Machinery Electric also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Beijing Jingcheng Machinery Electric'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.

Over 12 months, Beijing Jingcheng Machinery Electric reported revenue of CN¥1.5b, which is a gain of 12%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Beijing Jingcheng Machinery Electric?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Beijing Jingcheng Machinery Electric had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥207m and booked a CN¥25m accounting loss. But at least it has CN¥139.5m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. For riskier companies like Beijing Jingcheng Machinery Electric 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.

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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