These 4 Measures Indicate That Time Publishing and Media (SHSE:600551) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Time Publishing and Media Co., Ltd. (SHSE:600551) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

View our latest analysis for Time Publishing and Media

How Much Debt Does Time Publishing and Media Carry?

As you can see below, Time Publishing and Media had CN¥252.9m of debt at June 2024, down from CN¥344.4m a year prior. However, its balance sheet shows it holds CN¥3.89b in cash, so it actually has CN¥3.64b net cash.

How Strong Is Time Publishing and Media's Balance Sheet?

The latest balance sheet data shows that Time Publishing and Media had liabilities of CN¥2.76b due within a year, and liabilities of CN¥92.1m falling due after that. On the other hand, it had cash of CN¥3.89b and CN¥1.36b worth of receivables due within a year. So it actually has CN¥2.40b more liquid assets than total liabilities.

This surplus strongly suggests that Time Publishing and Media has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Time Publishing and Media boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Time Publishing and Media has boosted its EBIT by 34%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Time Publishing and Media's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Time Publishing and 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 three years, Time Publishing and Media 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 Time Publishing and Media has net cash of CN¥3.64b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of CN¥625m, being 190% of its EBIT. At the end of the day we're not concerned about Time Publishing and Media's debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Time Publishing and Media (of which 1 doesn't sit too well with us!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.