Does China Television Media (SHSE:600088) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that China Television Media, Ltd. (SHSE:600088) does use debt in its business. But is this debt a concern to shareholders?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for China Television Media

How Much Debt Does China Television Media Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 China Television Media had CN¥14.1m of debt, an increase on none, over one year. But it also has CN¥620.4m in cash to offset that, meaning it has CN¥606.4m net cash.

How Strong Is China Television Media's Balance Sheet?

According to the last reported balance sheet, China Television Media had liabilities of CN¥304.9m due within 12 months, and liabilities of CN¥100.0m due beyond 12 months. Offsetting this, it had CN¥620.4m in cash and CN¥104.3m in receivables that were due within 12 months. So it can boast CN¥319.8m more liquid assets than total liabilities.

This short term liquidity is a sign that China Television Media could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, China Television Media boasts net cash, so it's fair to say it does not have a heavy debt load!

Although China Television Media made a loss at the EBIT level, last year, it was also good to see that it generated CN¥45m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is China Television Media's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. China Television Media may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, China Television Media reported free cash flow worth 16% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case China Television Media has CN¥606.4m in net cash and a decent-looking balance sheet. So we don't have any problem with China Television Media's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for China Television Media 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.