Is China Parenting Network Holdings (HKG: 1736) Using Debt Wisely?
David Iben put it well when he said, âVolatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We can see that China Parenting Network Holdings Limited (HKG: 1736) uses debt in his business. But the real question is whether this debt makes the business risky.
Why Does Debt Bring Risk?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, many companies use debt to finance their growth without negative consequences. The first step in examining a business’s debt levels is to consider its cash flow and debt together.
Check out our latest analysis for China Parenting Network Holdings
How much debt do China Parenting Network holdings carry?
The image below, which you can click for more details, shows that in June 2021, China Parenting Network Holdings was in debt of CN 44.3 million, compared to CN 19.0 million in a year. However, he has CN 44.4 million in cash offsetting this, which leads to a net cash position of CN 115.0,000.
How strong is China Parenting Network Holdings’ balance sheet?
According to the latest published balance sheet, China Parenting Network Holdings had CN 66.5 million liabilities due within 12 months and CN 3.05 million liabilities due beyond 12 months. In compensation for these obligations, it had cash of CN 44.4 million as well as receivables valued at CN 29.9 million due within 12 months. So, it can boast of having more than CN Â¥ 4.74m in liquid assets than total Liabilities.
This surplus suggests that China Parenting Network Holdings has a prudent balance sheet and could likely eliminate its debt without too much difficulty. In short, China Parenting Network Holdings has net cash, so it’s fair to say it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But you can’t look at debt in isolation; since China Parenting Network Holdings will need revenue to repay this debt. So if you want to know more about its profits, it may be worth checking out this long term profit trend chart.
Year over 12 months, China Parenting Network Holdings reported revenue of CNN 102 million, a gain of 35%, although it reported no profit before interest and taxes. The shareholders are probably keeping their fingers crossed that this could generate a profit.
So how risky is China Parenting Network Holdings?
By their very nature, businesses that lose money are riskier than those with a long history of profitability. And over the past year, China Parenting Network Holdings has recorded a loss of earnings before interest and taxes (EBIT), frankly. And during the same period, it recorded a negative free cash outflow of CNN 22 million and a book loss of CNN 77 million. Since it only has net cash of CNN 115.0k, the company may need to raise more capital if it does not hit breakeven soon. China Parenting Network Holdings’ revenue growth has shone over the past year, so it may well be able to turn profit in due time. By investing before these profits, shareholders take more risk in the hope of greater rewards. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. Note that China Parenting Network Holdings shows 3 warning signs in our investment analysis , and 2 of them are a bit rude …
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.