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. We note that Northern United Publishing & Media (Group) Company Limited (SHSE:601999) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Northern United Publishing & Media (Group)
How Much Debt Does Northern United Publishing & Media (Group) Carry?
As you can see below, at the end of March 2023, Northern United Publishing & Media (Group) had CN¥60.1m of debt, up from CN¥30.0m a year ago. Click the image for more detail. However, it does have CN¥909.7m in cash offsetting this, leading to net cash of CN¥849.6m.
A Look At Northern United Publishing & Media (Group)'s Liabilities
The latest balance sheet data shows that Northern United Publishing & Media (Group) had liabilities of CN¥1.41b due within a year, and liabilities of CN¥258.7m falling due after that. Offsetting this, it had CN¥909.7m in cash and CN¥767.3m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
This state of affairs indicates that Northern United Publishing & Media (Group)'s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥4.23b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Northern United Publishing & Media (Group) has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Northern United Publishing & Media (Group)'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 Northern United Publishing & Media (Group) had a loss before interest and tax, and actually shrunk its revenue by 13%, to CN¥2.6b. That's not what we would hope to see.
So How Risky Is Northern United Publishing & Media (Group)?
While Northern United Publishing & Media (Group) lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥79m. 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. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. Case in point: We've spotted 4 warning signs for Northern United Publishing & Media (Group) you should be aware of, and 1 of them is potentially serious.
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.