Does Dlg Exhibitions & Events (SHSE:600826) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 note that Dlg Exhibitions & Events Corporation Limited (SHSE:600826) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Dlg Exhibitions & Events

How Much Debt Does Dlg Exhibitions & Events Carry?

As you can see below, Dlg Exhibitions & Events had CN¥497.2m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has CN¥2.36b in cash to offset that, meaning it has CN¥1.86b net cash.

How Strong Is Dlg Exhibitions & Events' Balance Sheet?

According to the last reported balance sheet, Dlg Exhibitions & Events had liabilities of CN¥1.37b due within 12 months, and liabilities of CN¥681.0m due beyond 12 months. Offsetting these obligations, it had cash of CN¥2.36b as well as receivables valued at CN¥102.7m due within 12 months. So it actually has CN¥410.8m more liquid assets than total liabilities.

This surplus suggests that Dlg Exhibitions & Events has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Dlg Exhibitions & Events boasts net cash, so it's fair to say it does not have a heavy debt load!

It was also good to see that despite losing money on the EBIT line last year, Dlg Exhibitions & Events turned things around in the last 12 months, delivering and EBIT of CN¥254m. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Dlg Exhibitions & Events'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Dlg Exhibitions & Events has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Dlg Exhibitions & Events recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Dlg Exhibitions & Events has CN¥1.86b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥240m, being 94% of its EBIT. So is Dlg Exhibitions & Events's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Dlg Exhibitions & Events that you should be aware of before investing here.

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.