Health Check: How Prudently Does Jiangsu Broadcasting Cable Information Network (SHSE:600959) Use Debt?

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.' 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, Jiangsu Broadcasting Cable Information Network Corporation Limited (SHSE:600959) does carry debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Jiangsu Broadcasting Cable Information Network

How Much Debt Does Jiangsu Broadcasting Cable Information Network Carry?

As you can see below, at the end of September 2024, Jiangsu Broadcasting Cable Information Network had CN¥4.67b of debt, up from CN¥3.86b a year ago. Click the image for more detail. But it also has CN¥6.27b in cash to offset that, meaning it has CN¥1.61b net cash.

How Strong Is Jiangsu Broadcasting Cable Information Network's Balance Sheet?

According to the last reported balance sheet, Jiangsu Broadcasting Cable Information Network had liabilities of CN¥12.2b due within 12 months, and liabilities of CN¥1.76b due beyond 12 months. Offsetting these obligations, it had cash of CN¥6.27b as well as receivables valued at CN¥1.78b due within 12 months. So its liabilities total CN¥5.95b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Jiangsu Broadcasting Cable Information Network is worth CN¥17.7b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Jiangsu Broadcasting Cable Information Network also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jiangsu Broadcasting Cable 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, Jiangsu Broadcasting Cable Information Network reported revenue of CN¥7.8b, which is a gain of 4.3%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Jiangsu Broadcasting Cable Information Network?

Although Jiangsu Broadcasting Cable Information Network had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥300m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Jiangsu Broadcasting Cable Information Network .

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.

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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.