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.' 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. We note that Guangxi Radio and Television Information Network Corporation Limited (SHSE:600936) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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, 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.

What Is Guangxi Radio and Television Information Network's Debt?

As you can see below, Guangxi Radio and Television Information Network had CN¥4.23b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has CN¥234.1m in cash leading to net debt of about CN¥3.99b.

How Strong Is Guangxi Radio and Television Information Network's Balance Sheet?

The latest balance sheet data shows that Guangxi Radio and Television Information Network had liabilities of CN¥3.15b due within a year, and liabilities of CN¥3.41b falling due after that. Offsetting these obligations, it had cash of CN¥234.1m as well as receivables valued at CN¥846.6m due within 12 months. So its liabilities total CN¥5.48b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of CN¥3.94b, we think shareholders really should watch Guangxi Radio and Television Information Network's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is Guangxi Radio and Television Information Network's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Guangxi Radio and Television Information Network had a loss before interest and tax, and actually shrunk its revenue by 32%, to CN¥1.2b. To be frank that doesn't bode well.

Caveat Emptor

Not only did Guangxi Radio and Television Information Network's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping CN¥567m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of CN¥754m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. 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 1 warning sign for Guangxi Radio and Television Information Network you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.