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Is City Developments (SGX:C09) A Risky Investment?
Is City Developments (SGX:C09) A Risky Investment?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, City Developments Limited (SGX:C09) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for City Developments
What Is City Developments's Net Debt?
You can click the graphic below for the historical numbers, but it shows that City Developments had S$9.39b of debt in June 2022, down from S$11.5b, one year before. However, it does have S$2.16b in cash offsetting this, leading to net debt of about S$7.22b.
SGX:C09 Debt to Equity History September 10th 2022How Healthy Is City Developments' Balance Sheet?
According to the last reported balance sheet, City Developments had liabilities of S$6.48b due within 12 months, and liabilities of S$6.96b due beyond 12 months. Offsetting this, it had S$2.16b in cash and S$1.94b in receivables that were due within 12 months. So its liabilities total S$9.34b more than the combination of its cash and short-term receivables.
When you consider that this deficiency exceeds the company's S$7.64b market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution.
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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Weak interest cover of 1.7 times and a disturbingly high net debt to EBITDA ratio of 14.6 hit our confidence in City Developments like a one-two punch to the gut. This means we'd consider it to have a heavy debt load. However, the silver lining was that City Developments achieved a positive EBIT of S$254m in the last twelve months, an improvement on the prior year's loss. 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 City Developments 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.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Over the last year, City Developments actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Our View
To be frank both City Developments's interest cover and its track record of managing its debt, based on its EBITDA, make us rather uncomfortable with its debt levels. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. Once we consider all the factors above, together, it seems to us that City Developments's debt is making it a bit risky. Some people like that sort of risk, but we're mindful of the potential pitfalls, so we'd probably prefer it carry less debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example City Developments has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.
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.
传奇基金经理李露(由查理·芒格支持)曾经说过:“最大的投资风险不是价格的波动,而是你是否会遭受永久的资本损失。”因此,很明显,当你考虑任何给定股票的风险时,你需要考虑债务,因为过多的债务会使公司陷入困境。重要的是,城市发展有限公司(新加坡证券交易所股票代码:C09)确实有债务。但是,股东是否应该担心其债务的使用?
债务何时会成为问题?
当企业无法通过自由现金流或以诱人的价格筹集资金来轻松履行这些义务时,债务和其他负债就会成为风险。最终,如果公司无法履行偿还债务的法律义务,股东们可能会一无所获。尽管这种情况并不常见,但我们经常会看到负债公司永久稀释股东,因为贷款人迫使他们以不良价格筹集资金。但是,通过取代稀释,对于需要资本以高回报率投资增长的企业来说,债务可以成为一个非常好的工具。当我们检查债务水平时,我们首先要同时考虑现金和债务水平。
查看我们对城市发展的最新分析
城市开发的净负债是多少?
你可以点击下图查看历史数字,但它显示城市发展在2022年6月的债务为93.9亿新元,低于一年前的115亿新元。但是,它确实有21.6亿新元的现金抵消了这一点,净负债约为72.2亿新元。
SGX: C09 债券与股本比率历史记录 2022年9月10日城市发展的资产负债表有多健康?
根据上次报告的资产负债表,城市开发公司的负债为64.8亿新元,12个月后到期的负债为69.6亿新元。与此相抵消的是,它有21.6亿新元的现金和19.4亿新元的应收账款将在12个月内到期。因此,其负债总额比其现金和短期应收账款的总额高出93.4亿新元。
当你考虑到这一缺口超过了公司76.4亿新元的市值时,你很可能会倾向于仔细审查资产负债表。在公司必须迅速清理资产负债表的情况下,股东似乎可能会遭受大规模稀释。
为了扩大公司相对于收益的负债规模,我们计算其净负债除以其扣除利息、税项、折旧和摊销前的收益(EBITDA)和其利息和税前收益(EBIT)除以其利息支出(利息保障)。因此,无论是否有折旧和摊销费用,我们都将债务与收益的关系考虑在内。
1.7倍的薄弱利息覆盖率和令人不安的高净负债与息税折旧摊销前利润比率14.6打击了我们对城市发展的信心,就像是一二的冲击。这意味着我们会认为它有沉重的债务负担。但是,一线希望是,城市发展在过去十二个月中实现了2.54亿新元的正息税前利润,比去年的亏损有所改善。毫无疑问,我们从资产负债表中学到的关于债务的知识最多。但最终,该业务的未来盈利能力将决定城市发展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。
最后,企业需要自由现金流来偿还债务;会计利润根本无法减少债务。因此,重要的是要检查其利息和税前收益(EBIT)中有多少可以转换为实际的自由现金流。去年,城市发展产生的自由现金流实际上超过了息税前利润。这种强劲的现金产生像穿着大黄蜂套装的小狗一样温暖着我们的心。
我们的观点
坦率地说,城市开发公司的利息保障及其根据息税折旧摊销前利润管理债务的往绩都使我们对其债务水平感到相当不舒服。但至少在将息税前利润转换为自由现金流方面相当不错;这令人鼓舞。一旦我们综合考虑了上述所有因素,在我们看来,城市开发公司的债务使其有点风险。有些人喜欢这种风险,但我们注意到了潜在的陷阱,因此我们可能更希望它承担较少的债务。毫无疑问,我们从资产负债表中学到的关于债务的知识最多。但是,并非所有的投资风险都存在于资产负债表中,远非如此。例如,City Developments有4个警告标志(其中2个不容忽视),我们认为你应该知道。
如果你有兴趣投资能够在没有债务负担的情况下增加利润的企业,请查看这份资产负债表上有净现金的成长型企业的免费清单。
对这篇文章有反馈吗?对内容感到担忧?直接联系我们。 或者,给编辑团队 (at) simplywallst.com 发送电子邮件。
Simply Wall St 的这篇文章本质上是笼统的。我们仅使用公正的方法提供基于历史数据和分析师预测的评论,我们的文章并非旨在提供财务建议。它不构成买入或卖出任何股票的建议,也没有考虑到您的目标或财务状况。我们的目标是为您提供由基本数据驱动的长期重点分析。请注意,我们的分析可能不会考虑最新的价格敏感型公司公告或定性材料。华尔街只是没有持有上述任何股票的头寸。
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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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