We Think Mango Excellent Media (SZSE:300413) Can Stay On Top Of Its Debt

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. As with many other companies Mango Excellent Media Co., Ltd. (SZSE:300413) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Mango Excellent Media

What Is Mango Excellent Media's Debt?

You can click the graphic below for the historical numbers, but it shows that Mango Excellent Media had CN¥33.8m of debt in March 2024, down from CN¥1.38b, one year before. However, its balance sheet shows it holds CN¥13.0b in cash, so it actually has CN¥13.0b net cash.

A Look At Mango Excellent Media's Liabilities

According to the last reported balance sheet, Mango Excellent Media had liabilities of CN¥9.74b due within 12 months, and liabilities of CN¥205.2m due beyond 12 months. On the other hand, it had cash of CN¥13.0b and CN¥5.04b worth of receivables due within a year. So it actually has CN¥8.13b more liquid assets than total liabilities.

This excess liquidity suggests that Mango Excellent Media is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Mango Excellent Media boasts net cash, so it's fair to say it does not have a heavy debt load!

Mango Excellent Media's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. 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 Mango Excellent Media'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Mango Excellent Media has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, Mango Excellent Media recorded free cash flow of 32% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Mango Excellent Media has net cash of CN¥13.0b, as well as more liquid assets than liabilities. So we don't have any problem with Mango Excellent Media's use of debt. 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. Case in point: We've spotted 3 warning signs for Mango Excellent Media you should be aware of, and 2 of them are a bit concerning.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.