Is Ciwen MediaLtd (SZSE:002343) A Risky Investment?

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. We can see that Ciwen Media Co.,Ltd. (SZSE:002343) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Ciwen MediaLtd

What Is Ciwen MediaLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Ciwen MediaLtd had CN¥159.9m of debt, an increase on CN¥770.1k, over one year. However, it does have CN¥158.0m in cash offsetting this, leading to net debt of about CN¥1.80m.

A Look At Ciwen MediaLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that Ciwen MediaLtd had liabilities of CN¥503.2m due within 12 months and liabilities of CN¥3.61m due beyond that. Offsetting these obligations, it had cash of CN¥158.0m as well as receivables valued at CN¥201.0m due within 12 months. So it has liabilities totalling CN¥147.7m more than its cash and near-term receivables, combined.

Since publicly traded Ciwen MediaLtd shares are worth a total of CN¥4.68b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Ciwen MediaLtd has virtually no net debt, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Ciwen MediaLtd will need earnings to service that debt. 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, Ciwen MediaLtd made a loss at the EBIT level, and saw its revenue drop to CN¥71m, which is a fall of 86%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Ciwen MediaLtd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CN¥15m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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¥126m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Ciwen MediaLtd has 1 warning sign we think 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.