Does Xinhua Winshare Publishing and Media (HKG:811) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Xinhua Winshare Publishing and Media Co., Ltd. (HKG:811) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

View our latest analysis for Xinhua Winshare Publishing and Media

What Is Xinhua Winshare Publishing and Media's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Xinhua Winshare Publishing and Media had CN¥28.0m of debt, an increase on none, over one year. However, it does have CN¥8.22b in cash offsetting this, leading to net cash of CN¥8.19b.

How Strong Is Xinhua Winshare Publishing and Media's Balance Sheet?

The latest balance sheet data shows that Xinhua Winshare Publishing and Media had liabilities of CN¥8.91b due within a year, and liabilities of CN¥357.7m falling due after that. On the other hand, it had cash of CN¥8.22b and CN¥2.77b worth of receivables due within a year. So it can boast CN¥1.72b more liquid assets than total liabilities.

This surplus suggests that Xinhua Winshare Publishing and Media has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Xinhua Winshare Publishing and Media has more cash than debt is arguably a good indication that it can manage its debt safely.

Another good sign is that Xinhua Winshare Publishing and Media has been able to increase its EBIT by 24% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Xinhua Winshare Publishing and Media can strengthen its balance sheet over time. 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. Xinhua Winshare Publishing and 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. Happily for any shareholders, Xinhua Winshare Publishing and Media actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Xinhua Winshare Publishing and Media has CN¥8.19b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 134% of that EBIT to free cash flow, bringing in CN¥2.1b. So is Xinhua Winshare Publishing and Media's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 1 warning sign for Xinhua Winshare Publishing and Media that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.