Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Ciwen Media Co.,Ltd. (SZSE:002343) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Ciwen MediaLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Ciwen MediaLtd had CN¥104.4m of debt, an increase on CN¥28.3m, over one year. But on the other hand it also has CN¥153.0m in cash, leading to a CN¥48.6m net cash position.

How Strong Is Ciwen MediaLtd's Balance Sheet?

We can see from the most recent balance sheet that Ciwen MediaLtd had liabilities of CN¥411.6m falling due within a year, and liabilities of CN¥3.61m due beyond that. On the other hand, it had cash of CN¥153.0m and CN¥170.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥92.0m.

Given Ciwen MediaLtd has a market capitalization of CN¥3.95b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Ciwen MediaLtd also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Ciwen MediaLtd can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Ciwen MediaLtd had a loss before interest and tax, and actually shrunk its revenue by 86%, to CN¥71m. To be frank that doesn't bode well.

So How Risky Is Ciwen MediaLtd?

Although Ciwen MediaLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CN¥16m. 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. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Ciwen MediaLtd that you should be aware of.

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.