Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Guangxi Radio and Television Information Network Corporation Limited (SHSE:600936) makes use of debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is Guangxi Radio and Television Information Network's Debt?

The chart below, which you can click on for greater detail, shows that Guangxi Radio and Television Information Network had CN¥4.43b in debt in September 2024; about the same as the year before. However, because it has a cash reserve of CN¥249.1m, its net debt is less, at about CN¥4.18b.

How Strong Is Guangxi Radio and Television Information Network's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Guangxi Radio and Television Information Network had liabilities of CN¥3.17b due within 12 months and liabilities of CN¥3.55b due beyond that. On the other hand, it had cash of CN¥249.1m and CN¥878.4m worth of receivables due within a year. So it has liabilities totalling CN¥5.59b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of CN¥5.75b, so it does suggest shareholders should keep an eye on Guangxi Radio and Television Information Network's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Guangxi Radio and Television 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.

In the last year Guangxi Radio and Television Information Network had a loss before interest and tax, and actually shrunk its revenue by 23%, to CN¥1.2b. To be frank that doesn't bode well.

Caveat Emptor

While Guangxi Radio and Television Information Network's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CN¥673m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥148m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Guangxi Radio and Television Information Network 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.