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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. 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. We can see that SEEC Media Group Limited (HKG:205) does use debt in its business. But should shareholders be worried about its use of debt?
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 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. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for SEEC Media Group
What Is SEEC Media Group's Debt?
As you can see below, SEEC Media Group had HK$22.6m of debt, at June 2019, which is about the same the year before. You can click the chart for greater detail. But on the other hand it also has HK$121.2m in cash, leading to a HK$98.6m net cash position.
How Healthy Is SEEC Media Group's Balance Sheet?
According to the last reported balance sheet, SEEC Media Group had liabilities of HK$264.6m due within 12 months, and liabilities of HK$6.40m due beyond 12 months. Offsetting this, it had HK$121.2m in cash and HK$412.8m in receivables that were due within 12 months. So it can boast HK$262.9m more liquid assets than total liabilities.
This surplus strongly suggests that SEEC Media Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, it seems its balance sheet is as strong as a black-belt karate master. Succinctly put, SEEC Media Group boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is SEEC Media Group's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
In the last year SEEC Media Group had negative earnings before interest and tax, and actually shrunk its revenue by 51%, to HK$134m. To be frank that doesn't bode well.
So How Risky Is SEEC Media Group?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months SEEC Media Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of HK$12m and booked a HK$79m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of HK$98.6m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. For riskier companies like SEEC Media Group I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.