Jiangsu Phoenix Publishing & Media (SHSE:601928) Seems To Use Debt Quite Sensibly

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.' 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 Jiangsu Phoenix Publishing & Media Corporation Limited (SHSE:601928) does use debt in its business. But is this debt a concern to shareholders?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Jiangsu Phoenix Publishing & Media

What Is Jiangsu Phoenix Publishing & Media's Net Debt?

The image below, which you can click on for greater detail, shows that Jiangsu Phoenix Publishing & Media had debt of CN¥142.0m at the end of March 2024, a reduction from CN¥223.6m over a year. However, its balance sheet shows it holds CN¥3.56b in cash, so it actually has CN¥3.42b net cash.

A Look At Jiangsu Phoenix Publishing & Media's Liabilities

According to the last reported balance sheet, Jiangsu Phoenix Publishing & Media had liabilities of CN¥10.2b due within 12 months, and liabilities of CN¥1.31b due beyond 12 months. Offsetting this, it had CN¥3.56b in cash and CN¥1.18b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥6.80b.

While this might seem like a lot, it is not so bad since Jiangsu Phoenix Publishing & Media has a market capitalization of CN¥28.8b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Jiangsu Phoenix Publishing & Media boasts net cash, so it's fair to say it does not have a heavy debt load!

While Jiangsu Phoenix Publishing & Media doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jiangsu Phoenix Publishing & Media's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Jiangsu Phoenix Publishing & Media has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Jiangsu Phoenix Publishing & Media actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although Jiangsu Phoenix Publishing & Media's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of CN¥3.42b. The cherry on top was that in converted 143% of that EBIT to free cash flow, bringing in CN¥1.8b. So we don't think Jiangsu Phoenix Publishing & Media's use of debt is risky. 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 learn about the 2 warning signs we've spotted with Jiangsu Phoenix Publishing & Media (including 1 which makes us a bit uncomfortable) .

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.