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. ‘ It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We can see that Yuxing InfoTech Investment Holdings Limited (HKG: 8005) uses debt in its business. But should shareholders be concerned about its use of debt?
Why Does Debt Bring Risk?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. If things really go wrong, lenders can take over the business. 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. When we look at debt levels, we first consider both liquidity and debt levels.
Check out our latest analysis for Yuxing InfoTech Investment Holdings
What is the debt of Yuxing InfoTech Investment Holdings?
The image below, which you can click for more details, shows that in June 2021, Yuxing InfoTech Investment Holdings had a debt of HK $ 190.1 million, compared to HK $ 131.6 million in a year. year. But he also has HK $ 393.8 million in cash to make up for this, which means he has a net cash position of HK $ 203.6 million.
A look at the liabilities of Yuxing InfoTech Investment Holdings
According to the latest published balance sheet, Yuxing InfoTech Investment Holdings had a liability of HK $ 323.7 million due within 12 months and a liability of HK $ 24.6 million due beyond 12 months. In compensation for these obligations, it had cash of HK $ 393.8 million as well as receivables valued at HK $ 278.7 million due within 12 months. He can therefore claim HK $ 324.2 million more in liquid assets than total Liabilities.
This surplus strongly suggests that Yuxing InfoTech Investment Holdings has a rock solid balance sheet (and debt is no problem). From this point of view, lenders should feel as secure as the beloved of a black belt karate master. Put simply, the fact that Yuxing InfoTech Investment Holdings has more cash than debt is arguably a good indication that it can safely manage its debt. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is Yuxing InfoTech Investment Holdings’ earnings that will influence balance sheet performance in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Over the past year, Yuxing InfoTech Investment Holdings was not profitable on EBIT level, but managed to increase its turnover by 10%, to HK $ 263 million. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
So how risky is Yuxing InfoTech Investment Holdings?
While Yuxing InfoTech Investment Holdings lost money on earnings before interest and taxes (EBIT), it actually recorded a paper profit of HK $ 4.8 million. So taking this at face value, and given the money, we don’t think it’s very risky in the short term. With poor income growth over the past year, we do not find the investment opportunity particularly attractive. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Be aware that Yuxing InfoTech Investment Holdings shows 2 warning signs in our investment analysis , you must know…
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
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 shares 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 the mentioned stocks.
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