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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Hang Lung Group Limited (HKG:10) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Hang Lung Group
What Is Hang Lung Group's Net Debt?
As you can see below, at the end of June 2022, Hang Lung Group had HK$44.9b of debt, up from HK$41.3b a year ago. Click the image for more detail. However, it also had HK$5.31b in cash, and so its net debt is HK$39.6b.
SEHK:10 Debt to Equity History October 5th 2022
A Look At Hang Lung Group's Liabilities
The latest balance sheet data shows that Hang Lung Group had liabilities of HK$13.6b due within a year, and liabilities of HK$57.1b falling due after that. On the other hand, it had cash of HK$5.31b and HK$3.53b worth of receivables due within a year. So it has liabilities totalling HK$61.8b more than its cash and near-term receivables, combined.
This deficit casts a shadow over the HK$17.8b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Hang Lung Group would likely require a major re-capitalisation if it had to pay its creditors today.
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). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
As it happens Hang Lung Group has a fairly concerning net debt to EBITDA ratio of 5.3 but very strong interest coverage of 19.4. So either it has access to very cheap long term debt or that interest expense is going to grow! Hang Lung Group grew its EBIT by 7.8% in the last year. Whilst that hardly knocks our socks off it is a positive when it comes to debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Hang Lung Group will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the most recent three years, Hang Lung Group recorded free cash flow worth 60% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Our View
To be frank both Hang Lung Group's net debt to EBITDA and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. But on the bright side, its interest cover is a good sign, and makes us more optimistic. Looking at the balance sheet and taking into account all these factors, we do believe that debt is making Hang Lung Group stock a bit risky. That's not necessarily a bad thing, but we'd generally feel more comfortable with less leverage. 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. To that end, you should learn about the 2 warning signs we've spotted with Hang Lung Group (including 1 which is a bit unpleasant) .
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.
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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.
传奇基金经理李露(Charlie Munger 支持他)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。”当我们想到一家公司的风险有多大时,我们总是喜欢看看它对债务的使用,因为债务超负荷会导致破产。重要的是, 恒隆集团有限公司 (HKG: 10)确实有债务。但真正的问题是这笔债务是否使公司面临风险。
债务何时危险?
债务为企业提供帮助,直到企业难以用新的资本或自由现金流还清债务。最终,如果公司无法履行偿还债务的法律义务,股东可能一无所有地离开。但是,更常见(但仍然令人痛苦)的情况是,它必须以低廉的价格筹集新的股权资本,从而永久稀释股东。当然,许多公司使用债务为增长提供资金,而不会产生任何负面后果。考虑公司债务水平的第一步是将其现金和债务放在一起考虑。
查看我们对恒隆集团的最新分析
恒隆集团的净负债是多少?
如下所示,截至2022年6月底,恒隆集团的债务为449亿港元,高于一年前的413亿港元。点击图片了解更多细节。但是,它也有53.1亿港元的现金,因此其净负债为396亿港元。
香港交易所:10 债务转股权历史记录 2022 年 10 月 5 日
看看恒隆集团的负债
最新的资产负债表数据显示,恒隆集团在一年内到期的负债为136亿港元,此后到期的负债为571亿港元。另一方面,它在一年内有53.1亿港元的现金和35.3亿港元的应收账款到期。因此,它的负债总额比其现金和短期应收账款的总和多出618亿港元。
这种赤字给这家178亿港元的公司蒙上了阴影,就像一个超越凡人的巨人。因此,毫无疑问,我们会密切关注其资产负债表。毕竟,如果恒隆集团今天必须向债权人付款,则可能需要进行大规模的资本重组。
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利息、税项、折旧和摊销前的收益(EBITDA),将其利息和税前收益(EBIT)除以利息支出(利息保障)。这样,我们既考虑债务的绝对数量,也考虑为债务支付的利率。
碰巧的是,恒隆集团的净负债与息税折旧摊销前利润的比率相当令人担忧,为5.3,但利息覆盖率非常高,为19.4。因此,要么它有机会获得非常便宜的长期债务,要么利息支出将增加!去年,恒隆集团的息税前利润增长了7.8%。尽管这几乎不会让我们大吃一惊,但在债务方面却是积极的。资产负债表显然是分析债务时需要重点关注的领域。但是你不能完全孤立地看待债务;因为恒隆集团需要收入来偿还债务。因此,如果你想进一步了解它的收益,可能值得看看这张长期收益趋势图。
最后,公司只能用冷硬现金偿还债务,不能用会计利润。因此,我们显然需要研究息税前利润是否带来了相应的自由现金流。在最近三年中,恒隆集团录得的自由现金流相当于其息税前利润的60%,这与正常水平差不多,因为自由现金流不包括利息和税收。这种自由现金流使公司处于在适当时偿还债务的有利地位。
我们的观点
坦率地说,恒隆集团的净负债占息税折旧摊销前利润的比例及其保持在总负债之上的往绩都使我们对其债务水平感到相当不舒服。但好的一面是,它的利息覆盖是个好兆头,也使我们更加乐观。从资产负债表来看,考虑到所有这些因素,我们确实认为债务使恒隆集团的股票有点风险。这不一定是坏事,但我们通常会觉得杠杆率降低会更舒服。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内——远非如此。为此,你应该了解 2 个警告标志 我们发现了恒隆集团(包括1个,有点不愉快)。
如果你有兴趣投资那些可以在没有债务负担的情况下增加利润的企业,那就看看这个 免费的 资产负债表上有净现金的成长型企业名单。
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Simply Wall St 的这篇文章本质上是一般性的。 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,我们的文章无意提供财务建议。 它不构成买入或卖出任何股票的建议,也没有考虑您的目标或财务状况。我们的目标是为您提供由基本面数据驱动的长期重点分析。请注意,我们的分析可能未将最新的价格敏感型公司公告或定性材料考虑在内。简而言之,华尔街对上述任何股票都没有头寸。