Does Beijing Enlight Media (SZSE:300251) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 Beijing Enlight Media Co., Ltd. (SZSE:300251) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Beijing Enlight Media

What Is Beijing Enlight Media's Debt?

As you can see below, Beijing Enlight Media had CN¥13.7m of debt at September 2024, down from CN¥32.4m a year prior. But it also has CN¥3.16b in cash to offset that, meaning it has CN¥3.15b net cash.

A Look At Beijing Enlight Media's Liabilities

The latest balance sheet data shows that Beijing Enlight Media had liabilities of CN¥1.08b due within a year, and liabilities of CN¥164.5m falling due after that. Offsetting these obligations, it had cash of CN¥3.16b as well as receivables valued at CN¥256.8m due within 12 months. So it actually has CN¥2.17b more liquid assets than total liabilities.

This short term liquidity is a sign that Beijing Enlight Media could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Beijing Enlight Media has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, Beijing Enlight Media grew its EBIT by 535% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Beijing Enlight Media can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Beijing Enlight Media may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Beijing Enlight Media actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Beijing Enlight Media has CN¥3.15b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥1.1b, being 133% of its EBIT. So we don't think Beijing Enlight Media's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Beijing Enlight Media is showing 1 warning sign in our investment analysis , you should know about...

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.