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

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Mango Excellent Media Co., Ltd. (SZSE:300413) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Mango Excellent Media

How Much Debt Does Mango Excellent Media Carry?

As you can see below, Mango Excellent Media had CN¥33.8m of debt at September 2024, down from CN¥172.7m a year prior. However, it does have CN¥4.96b in cash offsetting this, leading to net cash of CN¥4.92b.

How Strong Is Mango Excellent Media's Balance Sheet?

We can see from the most recent balance sheet that Mango Excellent Media had liabilities of CN¥9.80b falling due within a year, and liabilities of CN¥211.7m due beyond that. Offsetting this, it had CN¥4.96b in cash and CN¥5.42b in receivables that were due within 12 months. So it actually has CN¥368.1m more liquid assets than total liabilities.

This state of affairs indicates that Mango Excellent Media's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥53.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Mango Excellent Media boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Mango Excellent Media's EBIT dived 14%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Mango Excellent 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. Looking at the most recent three years, Mango Excellent Media recorded free cash flow of 26% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Mango Excellent Media has CN¥4.92b in net cash and a decent-looking balance sheet. So we are not troubled with Mango Excellent Media's debt use. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Mango Excellent Media (of which 2 are a bit unpleasant!) you should know about.

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.