Does Guangdong Guangzhou Daily Media (SZSE:002181) Have A Healthy Balance Sheet?

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 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 Guangdong Guangzhou Daily Media Co., Ltd. (SZSE:002181) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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.

Check out our latest analysis for Guangdong Guangzhou Daily Media

What Is Guangdong Guangzhou Daily Media's Debt?

The image below, which you can click on for greater detail, shows that Guangdong Guangzhou Daily Media had debt of CN¥441.2m at the end of September 2024, a reduction from CN¥544.5m over a year. However, its balance sheet shows it holds CN¥517.1m in cash, so it actually has CN¥75.9m net cash.

How Strong Is Guangdong Guangzhou Daily Media's Balance Sheet?

The latest balance sheet data shows that Guangdong Guangzhou Daily Media had liabilities of CN¥443.5m due within a year, and liabilities of CN¥548.0m falling due after that. Offsetting these obligations, it had cash of CN¥517.1m as well as receivables valued at CN¥148.6m due within 12 months. So it has liabilities totalling CN¥325.8m more than its cash and near-term receivables, combined.

Of course, Guangdong Guangzhou Daily Media has a market capitalization of CN¥7.48b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Guangdong Guangzhou Daily Media also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Guangdong Guangzhou Daily 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, Guangdong Guangzhou Daily Media reported revenue of CN¥587m, which is a gain of 4.9%, 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 Guangdong Guangzhou Daily Media?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Guangdong Guangzhou Daily Media had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CN¥69m of cash and made a loss of CN¥30m. Given it only has net cash of CN¥75.9m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. We've identified 3 warning signs with Guangdong Guangzhou Daily Media , and understanding them should be part of your investment process.

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.