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.' 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 can see that Mango Excellent Media Co., Ltd. (SZSE:300413) does use debt in its business. But should shareholders be worried about its use of debt?

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Mango Excellent Media's Debt?

The image below, which you can click on for greater detail, shows that Mango Excellent Media had debt of CN¥33.8m at the end of September 2024, a reduction from CN¥172.7m over a year. But it also has CN¥4.96b in cash to offset that, meaning it has CN¥4.92b net cash.

How Healthy Is Mango Excellent Media's Balance Sheet?

The latest balance sheet data shows that Mango Excellent Media had liabilities of CN¥9.80b due within a year, and liabilities of CN¥211.7m falling due after 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 it's very unlikely that the CN¥49.8b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Mango Excellent Media boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Mango Excellent Media

But the bad news is that Mango Excellent Media has seen its EBIT plunge 14% in the last twelve months. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs 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 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. When analysing debt levels, the balance sheet is the obvious place to start. 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 don't sit too well with us!) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.