Does Guizhou BC&TV Information NetworkLTD (SHSE:600996) Have A Healthy Balance Sheet?

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 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 can see that Guizhou BC&TV Information Network CO.,LTD (SHSE:600996) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

View our latest analysis for Guizhou BC&TV Information NetworkLTD

What Is Guizhou BC&TV Information NetworkLTD's Net Debt?

As you can see below, Guizhou BC&TV Information NetworkLTD had CN¥6.00b of debt at September 2024, down from CN¥7.28b a year prior. However, it does have CN¥217.4m in cash offsetting this, leading to net debt of about CN¥5.79b.

How Strong Is Guizhou BC&TV Information NetworkLTD's Balance Sheet?

We can see from the most recent balance sheet that Guizhou BC&TV Information NetworkLTD had liabilities of CN¥10.2b falling due within a year, and liabilities of CN¥2.40b due beyond that. Offsetting this, it had CN¥217.4m in cash and CN¥3.86b in receivables that were due within 12 months. So its liabilities total CN¥8.50b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CN¥11.6b, so it does suggest shareholders should keep an eye on Guizhou BC&TV Information NetworkLTD's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But it is Guizhou BC&TV Information NetworkLTD'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, Guizhou BC&TV Information NetworkLTD made a loss at the EBIT level, and saw its revenue drop to CN¥1.4b, which is a fall of 61%. That makes us nervous, to say the least.

Caveat Emptor

While Guizhou BC&TV Information NetworkLTD's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CN¥1.2b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥323m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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. For example, we've discovered 2 warning signs for Guizhou BC&TV Information NetworkLTD (1 is concerning!) that you should be aware of before investing here.

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.