Is Phoenix Media Investment (Holdings) (HKG:2008) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Phoenix Media Investment (Holdings) Limited (HKG:2008) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Phoenix Media Investment (Holdings)'s Debt?

As you can see below, Phoenix Media Investment (Holdings) had HK$144.3m of debt at December 2024, down from HK$206.4m a year prior. However, it does have HK$2.54b in cash offsetting this, leading to net cash of HK$2.39b.

A Look At Phoenix Media Investment (Holdings)'s Liabilities

The latest balance sheet data shows that Phoenix Media Investment (Holdings) had liabilities of HK$1.65b due within a year, and liabilities of HK$431.1m falling due after that. Offsetting these obligations, it had cash of HK$2.54b as well as receivables valued at HK$586.6m due within 12 months. So it can boast HK$1.05b more liquid assets than total liabilities.

This surplus strongly suggests that Phoenix Media Investment (Holdings) has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Phoenix Media Investment (Holdings) boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Phoenix Media Investment (Holdings) will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Phoenix Media Investment (Holdings)

In the last year Phoenix Media Investment (Holdings) had a loss before interest and tax, and actually shrunk its revenue by 9.4%, to HK$2.2b. That's not what we would hope to see.

So How Risky Is Phoenix Media Investment (Holdings)?

While Phoenix Media Investment (Holdings) lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow HK$303m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. There's no doubt the next few years will be crucial to how the business matures. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Phoenix Media Investment (Holdings) .

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.