Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Angang Steel Company Limited (HKG:347) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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 Angang Steel's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Angang Steel had debt of CN¥12.9b, up from CN¥6.83b in one year. However, it also had CN¥3.33b in cash, and so its net debt is CN¥9.56b.

How Healthy Is Angang Steel's Balance Sheet?

According to the last reported balance sheet, Angang Steel had liabilities of CN¥46.4b due within 12 months, and liabilities of CN¥5.98b due beyond 12 months. Offsetting this, it had CN¥3.33b in cash and CN¥4.68b in receivables that were due within 12 months. So its liabilities total CN¥44.3b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the CN¥23.9b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Angang Steel would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Angang Steel can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Angang Steel

Over 12 months, Angang Steel made a loss at the EBIT level, and saw its revenue drop to CN¥102b, which is a fall of 9.1%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Angang Steel produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CN¥6.4b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through CN¥4.5b in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. For riskier companies like Angang Steel 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.

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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.