Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Carry Wealth Holdings Limited (HKG:643) makes use of debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Carry Wealth Holdings
What Is Carry Wealth Holdings's Net Debt?
The image below, which you can click on for greater detail, shows that Carry Wealth Holdings had debt of HK$17.7m at the end of June 2022, a reduction from HK$66.1m over a year. However, its balance sheet shows it holds HK$52.7m in cash, so it actually has HK$35.0m net cash.
SEHK:643 Debt to Equity History October 4th 2022
How Healthy Is Carry Wealth Holdings' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Carry Wealth Holdings had liabilities of HK$79.0m due within 12 months and liabilities of HK$18.4m due beyond that. Offsetting these obligations, it had cash of HK$52.7m as well as receivables valued at HK$40.5m due within 12 months. So it has liabilities totalling HK$4.10m more than its cash and near-term receivables, combined.
This state of affairs indicates that Carry Wealth Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the HK$638.1m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Carry Wealth Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.
We also note that Carry Wealth Holdings improved its EBIT from a last year's loss to a positive HK$2.5m. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Carry Wealth Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Carry Wealth Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Carry Wealth Holdings saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.
Summing Up
While it is always sensible to look at a company's total liabilities, it is very reassuring that Carry Wealth Holdings has HK$35.0m in net cash. So although we see some areas for improvement, we're not too worried about Carry Wealth Holdings's balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with Carry Wealth Holdings .
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.
一些人说,作为投资者,考虑风险的最佳方式是波动性,而不是债务,但巴菲特曾说过一句名言:波动性远非风险的同义词。因此,当你评估一家公司的风险有多大时,聪明的投资者似乎知道债务--通常涉及破产--是一个非常重要的因素。与许多其他公司一样携程财富控股有限公司(HKG:643)利用债务。但真正的问题是,这笔债务是否让该公司面临风险。
债务会带来什么风险?
当一家企业无法轻松履行这些义务时,债务和其他债务就会变得有风险,无论是通过自由现金流还是通过以有吸引力的价格筹集资本。资本主义的一部分是“创造性破坏”的过程,破产的企业被银行家无情地清算。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,债务的好处是,它往往代表着廉价资本,特别是当它用能够以高回报率进行再投资的能力取代公司的稀释时。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Carry Wealth Holdings的最新分析
Carry Wealth Holdings的净债务是什么?
下图显示,截至2022年6月底,Carry Wealth Holdings的债务为1770万港元,低于一年内的6610万港元。你可以点击下图查看更多细节。然而,该公司的资产负债表显示,该公司持有5270万港元现金,因此实际净现金为3500万港元。
联交所:643债转股历史2022年10月4日
Carry Wealth Holdings的资产负债表有多健康?
放大最新的资产负债表数据,我们可以看到Carry Wealth Holdings有7900万港元的负债在12个月内到期,而在此之后还有1840万港元的负债到期。作为这些债务的抵消,该公司有5270万港元的现金以及价值4050万港元的应收账款在12个月内到期。因此,该公司的负债总额比现金和近期应收账款的总和高出410万港元。
这种情况表明,Carry Wealth Holdings的资产负债表看起来相当稳健,其总负债与流动资产大致相当。因此,这家市值6.381亿港元的公司不太可能出现现金短缺的情况,但仍值得关注其资产负债表。虽然Carry Wealth Holdings确实有值得注意的负债,但它的现金也多于债务,所以我们非常有信心它能够安全地管理债务。
我们还注意到,Carry Wealth Holdings改善了息税前利润,从去年的亏损转为正250万港元。毫无疑问,我们从资产负债表中了解到的债务最多。但你不能完全孤立地看待债务;因为Carry Wealth Holdings需要盈利来偿还债务。因此,当考虑债务时,绝对值得关注收益趋势。点击此处查看互动快照。
最后,一家公司只能用冷硬现金偿还债务,而不是会计利润。虽然Carry Wealth Holdings的资产负债表上有净现金,但仍值得看看它将息税前收益(EBIT)转换为自由现金流的能力,以帮助我们了解它正在以多快的速度建立(或侵蚀)现金余额。在过去的一年里,Carry Wealth Holdings的自由现金流总额为大幅负值。尽管投资者无疑预计这种情况会在适当的时候逆转,但这显然意味着它使用债务的风险更大。
总结
尽管查看一家公司的总负债总是明智的,但Carry Wealth Holdings拥有3500万港元的净现金是非常令人放心的。因此,尽管我们看到了一些有待改进的地方,但我们并不太担心Carry Wealth Holdings的资产负债表。当你分析债务时,资产负债表显然是你关注的领域。然而,并非所有投资风险都存在于资产负债表中--远非如此。为此,您应该意识到3个警示标志我们发现了Carry Wealth Holdings。
归根结底,关注那些没有净债务的公司往往更好。你可以访问我们的这类公司的特别名单(都有利润增长的记录)。这是免费的。
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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。