Is Ciwen MediaLtd (SZSE:002343) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Ciwen Media Co.,Ltd. (SZSE:002343) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Ciwen MediaLtd

What Is Ciwen MediaLtd's Debt?

As you can see below, at the end of June 2024, Ciwen MediaLtd had CN¥104.4m of debt, up from CN¥28.3m a year ago. Click the image for more detail. But on the other hand it also has CN¥153.0m in cash, leading to a CN¥48.6m net cash position.

How Strong Is Ciwen MediaLtd's Balance Sheet?

The latest balance sheet data shows that Ciwen MediaLtd had liabilities of CN¥411.6m due within a year, and liabilities of CN¥3.61m falling due after that. On the other hand, it had cash of CN¥153.0m and CN¥170.1m worth of receivables due within a year. So its liabilities total CN¥92.0m more than the combination of its cash and short-term receivables.

Of course, Ciwen MediaLtd has a market capitalization of CN¥4.04b, 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, Ciwen MediaLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Ciwen MediaLtd'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.

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%. That makes us nervous, to say the least.

So How Risky Is Ciwen MediaLtd?

While Ciwen MediaLtd lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥16m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Ciwen MediaLtd you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.