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Is China Traditional Chinese Medicine Holdings (HKG:570) Using Too Much Debt?
Is China Traditional Chinese Medicine Holdings (HKG:570) Using Too Much Debt?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, China Traditional Chinese Medicine Holdings Co. Limited (HKG:570) does carry debt. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for China Traditional Chinese Medicine Holdings
What Is China Traditional Chinese Medicine Holdings's Net Debt?
The image below, which you can click on for greater detail, shows that at June 2022 China Traditional Chinese Medicine Holdings had debt of CN¥7.33b, up from CN¥6.44b in one year. On the flip side, it has CN¥6.14b in cash leading to net debt of about CN¥1.18b.
SEHK:570 Debt to Equity History September 5th 2022How Strong Is China Traditional Chinese Medicine Holdings' Balance Sheet?
We can see from the most recent balance sheet that China Traditional Chinese Medicine Holdings had liabilities of CN¥12.6b falling due within a year, and liabilities of CN¥2.64b due beyond that. On the other hand, it had cash of CN¥6.14b and CN¥7.35b worth of receivables due within a year. So its liabilities total CN¥1.70b more than the combination of its cash and short-term receivables.
Of course, China Traditional Chinese Medicine Holdings has a market capitalization of CN¥15.0b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
China Traditional Chinese Medicine Holdings has a low net debt to EBITDA ratio of only 0.43. And its EBIT easily covers its interest expense, being 13.4 times the size. So we're pretty relaxed about its super-conservative use of debt. The modesty of its debt load may become crucial for China Traditional Chinese Medicine Holdings if management cannot prevent a repeat of the 27% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if China Traditional Chinese Medicine Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, China Traditional Chinese Medicine Holdings reported free cash flow worth 15% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.
Our View
We feel some trepidation about China Traditional Chinese Medicine Holdings's difficulty EBIT growth rate, but we've got positives to focus on, too. To wit both its interest cover and net debt to EBITDA were encouraging signs. Looking at all the angles mentioned above, it does seem to us that China Traditional Chinese Medicine Holdings is a somewhat risky investment as a result of its debt. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. In light of our reservations about the company's balance sheet, it seems sensible to check if insiders have been selling shares recently.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
马克斯说得很好,他不是担心股价波动,而是我担心的是永久亏损的可能性……我认识的每个实际投资者都担心。当你考察一家公司的风险有多大时,考虑它的资产负债表是很自然的,因为当一家企业倒闭时,债务往往会涉及到它。重要的是中国中医药控股有限公司(HKG:570)确实有债务。但真正的问题是,这笔债务是否让该公司面临风险。
为什么债务会带来风险?
债务帮助企业,直到企业难以偿还债务,无论是用新资本还是用自由现金流。如果情况真的变得很糟糕,贷款人可以控制业务。然而,一种更常见(但仍然昂贵)的情况是,一家公司必须以低廉的股价稀释股东的股份,才能控制债务。当然,在企业中,债务可以是一个重要的工具,特别是资本密集型企业。在考虑一家公司的债务水平时,第一步是同时考虑其现金和债务。
查看我们对中国中医药控股的最新分析
中国中医药控股的净债务是多少?
下图显示,截至2022年6月,中国中医药控股的债务为73.3亿加元,高于一年内的64.4亿加元。你可以点击查看更多细节。另一方面,它有61.4亿加元的现金,导致净债务约11.8亿加元。
联交所:570债转股历史2022年9月5日中国中医药控股的资产负债表有多强劲?
从最近的资产负债表可以看到,中国中医药控股一年内有126亿元人民币的负债到期,还有26.4亿元人民币的负债在一年内到期。另一方面,一年内有现金61.4亿元和应收账款73.5亿元到期。因此,其负债总额为人民币17亿元,比现金和短期应收账款的总和还要多。
当然,中国中医药控股的市值为150亿元人民币,因此这些负债可能是可控的。话虽如此,很明显,我们应该继续监控它的资产负债表,以免它变得更糟。
为了评估一家公司的债务相对于它的收益,我们计算它的净债务除以它的利息、税项、折旧和摊销前收益(EBITDA)和它的利息和税前收益(EBIT)除以它的利息支出(它的利息覆盖)。这种方法的优点是,我们既考虑了债务的绝对数量(净债务与EBITDA之比),也考虑了与债务相关的实际利息支出(及其利息覆盖率)。
中国中医药控股的净债务与EBITDA之比较低,仅为0.43。而且它的息税前利润很容易弥补利息支出,是其规模的13.4倍。因此,我们对它对债务的超级保守使用相当放松。如果管理层不能防止去年息税前利润削减27%的情况重演,其适度的债务负担可能对中国中医药控股至关重要。收益下降(如果这种趋势持续下去)最终可能会使规模不大的债务面临相当大的风险。毫无疑问,我们从资产负债表中了解到的债务最多。但最终,该业务未来的盈利能力将决定中国中医药控股能否随着时间的推移加强其资产负债表。因此,如果你想看看专业人士的想法,你可能会发现这份关于分析师利润预测的免费报告很有趣。
但我们的最后考虑也很重要,因为一家公司不能用账面利润来偿还债务;它需要冷硬现金。因此,有必要检查这笔息税前利润中有多少是由自由现金流支持的。在过去的三年里,中国中医药控股公司报告的自由现金流相当于其息税前利润的15%,这确实是相当低的。这种疲软的现金转换水平削弱了它管理和偿还债务的能力。
我们的观点
我们对中国中医药控股的困难息税前利润增长率感到一些不安,但我们也有积极的方面需要关注。换句话说,它的利息覆盖率和净债务与EBITDA之比都是令人鼓舞的迹象。综上所述,在我们看来,由于中国中医药控股公司的债务,它确实是一项有一定风险的投资。这不一定是一件坏事,因为杠杆可以提高股本回报率,但这是需要注意的。鉴于我们对该公司的资产负债表持保留态度,检查内部人士最近是否一直在抛售股票似乎是明智的。
如果你有兴趣投资于可以在没有债务负担的情况下增长利润的企业,那么看看这个免费资产负债表上有净现金的成长型企业名单。
对这篇文章有什么反馈吗?担心内容吗? 保持联系直接与我们联系。或者,也可以给编辑组发电子邮件,地址是implywallst.com。
本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。
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moomoo是Moomoo Technologies Inc.公司提供的金融信息和交易应用程序。
在美国,moomoo上的投资产品和服务由Moomoo Financial Inc.提供,一家受美国证券交易委员会(SEC)监管的持牌主体。 Moomoo Financial Inc.是金融业监管局(FINRA)和证券投资者保护公司(SIPC)的成员。
在新加坡,moomoo上的投资产品和服务是通过Moomoo Financial Singapore Pte. Ltd.提供,该公司受新加坡金融管理局(MAS)监管(牌照号码︰CMS101000) ,持有资本市场服务牌照 (CMS) ,持有财务顾问豁免(Exempt Financial Adviser)资质。本内容未经新加坡金融管理局的审查。
在澳大利亚,moomoo上的金融产品和服务是通过Futu Securities (Australia) Ltd提供,该公司是受澳大利亚证券和投资委员会(ASIC)监管的澳大利亚金融服务许可机构(AFSL No. 224663)。请阅读并理解我们的《金融服务指南》、《条款与条件》、《隐私政策》和其他披露文件,这些文件可在我们的网站 https://www.moomoo.com/au中获取。
在加拿大,通过moomoo应用提供的仅限订单执行的券商服务由Moomoo Financial Canada Inc.提供,并受加拿大投资监管机构(CIRO)监管。
在马来西亚,moomoo上的投资产品和服务是通过Moomoo Securities Malaysia Sdn. Bhd. 提供,该公司受马来西亚证券监督委员会(SC)监管(牌照号码︰eCMSL/A0397/2024) ,持有资本市场服务牌照 (CMSL) 。本内容未经马来西亚证券监督委员会的审查。
Moomoo Technologies Inc., Moomoo Financial Inc., Moomoo Financial Singapore Pte. Ltd., Futu Securities (Australia) Ltd, Moomoo Financial Canada Inc.,和Moomoo Securities Malaysia Sdn. Bhd.是关联公司。
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