We Think Anhui Xinhua Media (SHSE:601801) Can Manage Its Debt With Ease

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Anhui Xinhua Media Co., Ltd. (SHSE:601801) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Anhui Xinhua Media

How Much Debt Does Anhui Xinhua Media Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Anhui Xinhua Media had CN¥1.24b of debt, an increase on CN¥1.04b, over one year. But on the other hand it also has CN¥10.8b in cash, leading to a CN¥9.54b net cash position.

How Strong Is Anhui Xinhua Media's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Anhui Xinhua Media had liabilities of CN¥7.77b due within 12 months and liabilities of CN¥873.8m due beyond that. On the other hand, it had cash of CN¥10.8b and CN¥2.94b worth of receivables due within a year. So it can boast CN¥5.08b more liquid assets than total liabilities.

This surplus liquidity suggests that Anhui Xinhua Media's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Anhui Xinhua Media boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Anhui Xinhua Media has increased its EBIT by 9.6% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Anhui Xinhua 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Anhui Xinhua 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. Over the last three years, Anhui Xinhua Media actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Anhui Xinhua Media has CN¥9.54b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of -CN¥32m, being 131% of its EBIT. So we don't think Anhui Xinhua Media's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Anhui Xinhua Media 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.