Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Jiangsu Broadcasting Cable Information Network Corporation Limited (SHSE:600959) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Jiangsu Broadcasting Cable Information Network's Net Debt?
The chart below, which you can click on for greater detail, shows that Jiangsu Broadcasting Cable Information Network had CN¥3.86b in debt in September 2023; about the same as the year before. However, it does have CN¥5.13b in cash offsetting this, leading to net cash of CN¥1.28b.
A Look At Jiangsu Broadcasting Cable Information Network's Liabilities
The latest balance sheet data shows that Jiangsu Broadcasting Cable Information Network had liabilities of CN¥13.4b due within a year, and liabilities of CN¥737.7m falling due after that. On the other hand, it had cash of CN¥5.13b and CN¥1.71b worth of receivables due within a year. So it has liabilities totalling CN¥7.32b more than its cash and near-term receivables, combined.
This deficit isn't so bad because Jiangsu Broadcasting Cable Information Network is worth CN¥14.2b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Jiangsu Broadcasting Cable Information Network also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Jiangsu Broadcasting Cable Information Network'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.
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¥336m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest 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. Be aware that Jiangsu Broadcasting Cable Information Network is showing 2 warning signs in our investment analysis , and 1 of those is concerning...
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.