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.' 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 Zhewen Pictures Group co.,ltd (SHSE:601599) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Zhewen Pictures Groupltd

What Is Zhewen Pictures Groupltd's Net Debt?

As you can see below, at the end of September 2023, Zhewen Pictures Groupltd had CN¥537.3m of debt, up from CN¥366.3m a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥1.23b in cash, so it actually has CN¥697.4m net cash.

How Strong Is Zhewen Pictures Groupltd's Balance Sheet?

According to the last reported balance sheet, Zhewen Pictures Groupltd had liabilities of CN¥1.89b due within 12 months, and liabilities of CN¥168.4m due beyond 12 months. Offsetting this, it had CN¥1.23b in cash and CN¥866.6m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to Zhewen Pictures Groupltd's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥4.89b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Zhewen Pictures Groupltd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Zhewen Pictures Groupltd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Zhewen Pictures Groupltd wasn't profitable at an EBIT level, but managed to grow its revenue by 3.4%, to CN¥2.8b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Zhewen Pictures Groupltd?

Although Zhewen Pictures Groupltd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥113m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Zhewen Pictures Groupltd is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.