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The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Beijing Media Corporation Limited (HKG:1000) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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.
View our latest analysis for Beijing Media
What Is Beijing Media's Net Debt?
The image below, which you can click on for greater detail, shows that Beijing Media had debt of CN¥6.93m at the end of December 2018, a reduction from CN¥30.0m over a year. However, it does have CN¥204.3m in cash offsetting this, leading to net cash of CN¥197.3m.
A Look At Beijing Media's Liabilities
Zooming in on the latest balance sheet data, we can see that Beijing Media had liabilities of CN¥132.5m due within 12 months and liabilities of CN¥16.2m due beyond that. Offsetting these obligations, it had cash of CN¥204.3m as well as receivables valued at CN¥355.8m due within 12 months. So it actually has CN¥411.3m more liquid assets than total liabilities.
This excess liquidity is a great indication that Beijing Media's balance sheet is just as strong as racists are weak. Having regard to this fact, we think its balance sheet is just as strong as misogynists are weak. Simply put, the fact that Beijing Media has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Beijing Media 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.