When it comes to evaluating a company's risk as an investor, the debate between volatility and debt often takes center stage. While some argue that volatility is the key indicator, Warren Buffett's famous quote reminds us that volatility is not synonymous with risk. In the case of Zhejiang Talent Television and Film Co., Ltd. (SZSE:300426), debt on its balance sheet raises important questions. Let's delve deeper into this matter.

Unraveling the Debt Dynamics of Zhejiang Talent Television and Film

When Is Debt Dangerous?

Debt serves as a tool for business growth, but it can become a double-edged sword. If a company fails to meet its debt obligations, lenders can take control, leaving shareholders with little to no value. Although such situations are not common, indebted companies often resort to diluting shareholders to raise capital at distressed prices. However, for businesses with high growth potential and the ability to generate returns, debt can be a powerful instrument.When examining a company's debt levels, it is crucial to consider both cash and debt together. This provides a more accurate picture of its financial health.

A Look At Zhejiang Talent Television and Film’s Liabilities

As of September 2024, Zhejiang Talent Television and Film had CN¥1.73b of debt, which remained relatively stable compared to the previous year. Despite this, its net debt is slightly lower at about CN¥1.59b due to a cash reserve of CN¥146.5m.The company had liabilities of CN¥1.86b due within 12 months and CN¥18.0m due beyond 12 months. However, it also had CN¥146.5m in cash and CN¥248.4m in receivables within 12 months. This means that its liabilities outweigh its cash and near-term receivables by CN¥1.48b.Although this may seem concerning, considering the company's market capitalization of CN¥4.72b, it has the potential to strengthen its balance sheet by raising capital if needed. Nevertheless, it is essential to closely monitor how the company manages its debt without resorting to dilution.When analyzing debt levels, the balance sheet provides a starting point. But it is not the only factor to consider. Earnings are crucial in servicing debt. Let's take a look at Zhejiang Talent Television and Film's earnings performance.

Over 12 Months: Earnings and Revenue Trends

Over the past 12 months, Zhejiang Talent Television and Film faced a challenging situation. It made a loss at the EBIT level and saw its revenue drop by 67% to CN¥171m. Such a significant decline in revenue is a cause for concern and raises questions about the company's ability to generate sufficient funds to meet its debt obligations.The EBIT loss of CN¥2.5m further adds to the complexity. Coupled with the existing liabilities, it does not inspire confidence in the company's debt management. Additionally, the fact that it burned through CN¥3.8m of cash over the last year is not a positive sign.While the balance sheet provides valuable insights into a company's debt situation, it is not the sole determinant of investment risk. There are other factors at play.We have identified 1 warning sign with Zhejiang Talent Television and Film, and it is crucial to be aware of these as part of your investment process.Of course, if you prefer investing in stocks without the burden of debt, we have an exclusive list of net cash growth stocks for you to explore.Valuation is a complex process, but we aim to simplify it. Discover if Zhejiang Talent Television and Film might be undervalued or overvalued with our detailed analysis, including fair value estimates, potential risks, dividends, insider trades, and its financial condition. Access our free analysis today.If you have any feedback or concerns about this article, please get in touch with us directly at editorial-team (at) simplywallst.com. This article by Simply Wall St is for general information purposes only and does not constitute financial advice. It does not recommend buying or selling any stock and does not take into account your individual objectives or financial situation. We focus on long-term analysis based on fundamental data and may not consider the latest price-sensitive company announcements or qualitative factors. Simply Wall St has no position in any stocks mentioned.