Health Check: How Prudently Does Guangxi Radio and Television Information Network (SHSE:600936) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies Guangxi Radio and Television Information Network Corporation Limited (SHSE:600936) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See 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¥4.43b of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have CN¥249.1m in cash offsetting this, leading to net debt of about CN¥4.18b.

How Healthy Is Guangxi Radio and Television Information Network's Balance Sheet?

We can see from the most recent balance sheet that Guangxi Radio and Television Information Network had liabilities of CN¥3.17b falling due within a year, and liabilities of CN¥3.55b due beyond that. Offsetting these obligations, it had cash of CN¥249.1m as well as receivables valued at CN¥878.4m due within 12 months. So its liabilities total CN¥5.59b more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's CN¥5.06b market capitalization, you might well be inclined to review the balance sheet intently. 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 it is Guangxi Radio and Television Information Network's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Guangxi Radio and Television Information Network made a loss at the EBIT level, and saw its revenue drop to CN¥1.2b, which is a fall of 23%. To be frank that doesn't bode well.

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). Its EBIT loss was a whopping CN¥673m. 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. Not least because it burned through CN¥148m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. 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. For example, we've discovered 3 warning signs for Guangxi Radio and Television Information Network (2 are a bit unpleasant!) that you should be aware of before investing here.

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.