Does Shenzhen Comix Group (SZSE:002301) Have A Healthy Balance Sheet?

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.' 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. Importantly, Shenzhen Comix Group Co., Ltd. (SZSE:002301) does carry debt. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Shenzhen Comix Group

How Much Debt Does Shenzhen Comix Group Carry?

The image below, which you can click on for greater detail, shows that Shenzhen Comix Group had debt of CN¥586.5m at the end of September 2024, a reduction from CN¥721.7m over a year. However, it does have CN¥3.68b in cash offsetting this, leading to net cash of CN¥3.10b.

How Strong Is Shenzhen Comix Group's Balance Sheet?

We can see from the most recent balance sheet that Shenzhen Comix Group had liabilities of CN¥5.69b falling due within a year, and liabilities of CN¥37.0m due beyond that. Offsetting these obligations, it had cash of CN¥3.68b as well as receivables valued at CN¥3.57b due within 12 months. So it can boast CN¥1.52b more liquid assets than total liabilities.

It's good to see that Shenzhen Comix Group has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Shenzhen Comix Group boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact Shenzhen Comix Group's saving grace is its low debt levels, because its EBIT has tanked 40% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Shenzhen Comix Group 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Shenzhen Comix Group 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 three years, Shenzhen Comix Group actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Shenzhen Comix Group has net cash of CN¥3.10b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of CN¥648m, being 454% of its EBIT. So is Shenzhen Comix Group's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Shenzhen Comix Group .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.