Health Check: How Prudently Does JiShi Media (SHSE:601929) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that JiShi Media Co., Ltd. (SHSE:601929) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for JiShi Media

What Is JiShi Media's Debt?

As you can see below, at the end of September 2023, JiShi Media had CN¥5.70b of debt, up from CN¥4.73b a year ago. Click the image for more detail. However, because it has a cash reserve of CN¥897.8m, its net debt is less, at about CN¥4.80b.

How Healthy Is JiShi Media's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that JiShi Media had liabilities of CN¥3.83b due within 12 months and liabilities of CN¥4.64b due beyond that. Offsetting these obligations, it had cash of CN¥897.8m as well as receivables valued at CN¥567.2m due within 12 months. So it has liabilities totalling CN¥7.01b more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's CN¥5.90b 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is JiShi Media's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, JiShi Media made a loss at the EBIT level, and saw its revenue drop to CN¥1.8b, which is a fall of 11%. That's not what we would hope to see.

Caveat Emptor

Not only did JiShi Media's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CN¥495m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of CN¥108m over the last twelve months. So suffice it to say we consider the stock to be 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. For example, we've discovered 3 warning signs for JiShi Media (2 are significant!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.