Does Guangxi Radio and Television Information Network (SHSE:600936) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. As with many other companies Guangxi Radio and Television Information Network Corporation Limited (SHSE:600936) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Guangxi Radio and Television Information Network

How Much Debt Does Guangxi Radio and Television Information Network Carry?

As you can see below, Guangxi Radio and Television Information Network had CN¥4.23b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have CN¥234.1m in cash offsetting this, leading to net debt of about CN¥3.99b.

A Look At Guangxi Radio and Television Information Network's Liabilities

Zooming in on the latest balance sheet data, we can see that Guangxi Radio and Television Information Network had liabilities of CN¥3.15b due within 12 months and liabilities of CN¥3.41b due beyond that. Offsetting this, it had CN¥234.1m in cash and CN¥846.6m in receivables that were due within 12 months. So it has liabilities totalling CN¥5.48b more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of CN¥3.79b, we think shareholders really should watch Guangxi Radio and Television Information Network's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Guangxi Radio and Television Information Network will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Guangxi Radio and Television Information Network had a loss before interest and tax, and actually shrunk its revenue by 32%, to CN¥1.2b. That makes us nervous, to say the least.

Caveat Emptor

Not only did Guangxi Radio and Television Information Network's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable CN¥567m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of CN¥754m. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Guangxi Radio and Television Information Network 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.