Is Guizhou BC&TV Information NetworkLTD (SHSE:600996) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Guizhou BC&TV Information Network CO.,LTD (SHSE:600996) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Guizhou BC&TV Information NetworkLTD

How Much Debt Does Guizhou BC&TV Information NetworkLTD Carry?

The chart below, which you can click on for greater detail, shows that Guizhou BC&TV Information NetworkLTD had CN¥7.02b in debt in March 2024; about the same as the year before. However, it also had CN¥251.8m in cash, and so its net debt is CN¥6.77b.

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

According to the last reported balance sheet, Guizhou BC&TV Information NetworkLTD had liabilities of CN¥10.2b due within 12 months, and liabilities of CN¥2.27b due beyond 12 months. On the other hand, it had cash of CN¥251.8m and CN¥4.02b worth of receivables due within a year. So its liabilities total CN¥8.24b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CN¥9.58b, so it does suggest shareholders should keep an eye on Guizhou BC&TV Information NetworkLTD's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Guizhou BC&TV Information NetworkLTD 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.

Over 12 months, Guizhou BC&TV Information NetworkLTD made a loss at the EBIT level, and saw its revenue drop to CN¥1.6b, which is a fall of 58%. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CN¥487m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Guizhou BC&TV Information NetworkLTD that you should be aware of.

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.