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.' 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. As with many other companies Jiangsu Broadcasting Cable Information Network Corporation Limited (SHSE:600959) makes use of debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Jiangsu Broadcasting Cable Information Network
How Much Debt Does Jiangsu Broadcasting Cable Information Network Carry?
You can click the graphic below for the historical numbers, but it shows that as of June 2023 Jiangsu Broadcasting Cable Information Network had CN¥4.43b of debt, an increase on CN¥3.20b, over one year. But it also has CN¥6.42b in cash to offset that, meaning it has CN¥2.00b net cash.
How Healthy Is Jiangsu Broadcasting Cable Information Network's Balance Sheet?
The latest balance sheet data shows that Jiangsu Broadcasting Cable Information Network had liabilities of CN¥14.1b due within a year, and liabilities of CN¥747.7m falling due after that. Offsetting this, it had CN¥6.42b in cash and CN¥1.71b in receivables that were due within 12 months. So it has liabilities totalling CN¥6.75b more than its cash and near-term receivables, combined.
Jiangsu Broadcasting Cable Information Network has a market capitalization of CN¥15.3b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Jiangsu Broadcasting Cable Information Network 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 you can't view debt in total isolation; since Jiangsu Broadcasting Cable Information Network 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.
Over 12 months, Jiangsu Broadcasting Cable Information Network saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.
So How Risky Is Jiangsu Broadcasting Cable Information Network?
Although Jiangsu Broadcasting Cable Information Network had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥348m. 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 revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 3 warning signs for Jiangsu Broadcasting Cable Information Network (of which 1 doesn't sit too well with us!) you should know about.
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.
