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These 4 Measures Indicate That China Water Affairs Group (HKG:855) Is Using Debt Extensively
These 4 Measures Indicate That China Water Affairs Group (HKG:855) Is Using Debt Extensively
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that China Water Affairs Group Limited (HKG:855) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for China Water Affairs Group
How Much Debt Does China Water Affairs Group Carry?
As you can see below, at the end of March 2022, China Water Affairs Group had HK$23.2b of debt, up from HK$19.1b a year ago. Click the image for more detail. However, it does have HK$7.17b in cash offsetting this, leading to net debt of about HK$16.0b.
SEHK:855 Debt to Equity History July 16th 2022How Healthy Is China Water Affairs Group's Balance Sheet?
We can see from the most recent balance sheet that China Water Affairs Group had liabilities of HK$19.2b falling due within a year, and liabilities of HK$17.3b due beyond that. Offsetting this, it had HK$7.17b in cash and HK$2.86b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$26.5b.
The deficiency here weighs heavily on the HK$11.7b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, China Water Affairs Group would likely require a major re-capitalisation if it had to pay its creditors today.
We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (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 Water Affairs Group's net debt is 3.4 times its EBITDA, which is a significant but still reasonable amount of leverage. However, its interest coverage of 12.1 is very high, suggesting that the interest expense on the debt is currently quite low. One way China Water Affairs Group could vanquish its debt would be if it stops borrowing more but continues to grow EBIT at around 14%, as it did over the last year. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if China Water Affairs Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, China Water Affairs Group recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.
Our View
On the face of it, China Water Affairs Group's conversion of EBIT to free cash flow left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But on the bright side, its interest cover is a good sign, and makes us more optimistic. It's also worth noting that China Water Affairs Group is in the Water Utilities industry, which is often considered to be quite defensive. Overall, we think it's fair to say that China Water Affairs Group has enough debt that there are some real risks around the balance sheet. If everything goes well that may pay off but the downside of this debt is a greater risk of permanent losses. 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 learn about the 3 warning signs we've spotted with China Water Affairs Group (including 1 which doesn't sit too well with us) .
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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.
伯克希爾哈撒韋的外部基金經理理想汽車·盧直言不諱地説,最大的投資風險不是價格的波動,而是你是否會遭受永久性的資本損失。當你考察一家公司的風險有多大時,考慮它的資產負債表是很自然的,因為當一家企業倒閉時,債務往往會涉及到它。我們可以看到中國水業集團事務集團有限公司(HKG:855)確實在其業務中使用債務。但更重要的問題是:這筆債務造成了多大的風險?
什麼時候債務是個問題?
一般來説,只有當一家公司無法輕鬆償還債務時,債務才會成為一個真正的問題,無論是通過籌集資金還是用自己的現金流。在最糟糕的情況下,如果一家公司無法償還債權人的債務,它可能會破產。然而,一種更常見(但仍然昂貴)的情況是,一家公司必須以低廉的股價稀釋股東的股份,才能控制債務。當然,債務的好處是,它往往代表着廉價資本,特別是當它用能夠以高回報率進行再投資的能力取代公司的稀釋時。當我們考慮一家公司的債務用途時,我們首先會把現金和債務放在一起看。
查看我們對中國水業集團事務組的最新分析
中國水業集團事務集團揹負着多少債務?
如下所示,截至2022年3月底,中國水業集團事務集團的債務為232億港元,高於一年前的191億港元。單擊圖像瞭解更多詳細信息。然而,它確實有71.7億港元的現金來抵消這一點,導致淨債務約為160億港元。
聯交所:855債轉股歷史2022年7月16日中國水業集團事務集團的資產負債表有多健康?
我們從最近的資產負債表可以看到,中國水業集團事務集團有192億港元的負債在一年內到期,而在這之後還有173億港元的負債到期。作為抵消,該公司有71.7億港元的現金和28.6億港元的應收賬款在12個月內到期。因此,其負債比現金和(近期)應收賬款之和高出265億港元。
這一不足給這家市值117億港元的公司本身帶來了沉重的負擔,就像一個孩子在一個裝滿書籍、運動裝備和小號的巨大揹包的重壓下掙扎一樣。因此,毫無疑問,我們會密切關注它的資產負債表。畢竟,如果中國水業集團今天必須償還債權人的債務,它很可能需要進行一次大規模的資本重組。
我們通過查看公司的淨債務除以利息、税項、折舊和攤銷前收益(EBITDA),並計算其息税前收益(EBIT)覆蓋利息支出(利息覆蓋)的容易程度,來衡量公司的債務負擔與其盈利能力的關係。這種方法的優點是,我們既考慮了債務的絕對數量(淨債務與EBITDA之比),也考慮了與債務相關的實際利息支出(及其利息覆蓋率)。
中國水業集團事務集團的淨債務是其息税前利潤的3.4倍,這是一個可觀但仍合理的槓桿量。然而,其12.1的利息覆蓋率非常高,這表明債務的利息支出目前相當低。中國水業集團事務集團擺脱債務的一種方法是停止更多借款,但息税前利潤繼續以14%左右的速度增長,就像去年所做的那樣。當你分析債務時,資產負債表顯然是你關注的領域。但最終,該業務未來的盈利能力將決定中國水業集團事務集團能否隨着時間的推移加強其資產負債表。所以,如果你關注未來,你可以看看這個免費顯示分析師利潤預測的報告。
最後,企業需要自由現金流來償還債務;會計利潤只是不能削減這一點。因此,合乎邏輯的一步是看看息税前利潤與實際自由現金流相匹配的比例。在過去三年中,中國水業集團事務集團的自由現金流總計為負。對於自由現金流不可靠的公司來説,債務的風險要大得多,因此股東們應該希望過去的支出能在未來產生自由現金流。
我們的觀點
從表面上看,中國水業集團事務集團將息税前利潤轉換為自由現金流,讓我們對股票持懷疑態度,其總負債水平並不比一年中最繁忙的夜晚的一家空蕩蕩的餐廳更具誘惑力。但從好的方面來看,它的利息覆蓋是一個好兆頭,讓我們更加樂觀。同樣值得注意的是,中國水業集團事務集團從事的是水務行業,該行業通常被認為是相當防禦性的。總體而言,我們認為,公平地説,中國水業集團事務集團有足夠的債務,資產負債表周圍存在一些真正的風險。如果一切順利,這可能會得到回報,但這筆債務的不利之處是永久性損失的風險更大。當你分析債務時,資產負債表顯然是你關注的領域。然而,並非所有投資風險都存在於資產負債表中--遠非如此。為此,您應該瞭解3個警示標誌我們已經與中國水業集團事務小組(包括1個不太受我們歡迎的小組)進行了接觸。
如果你對一家增長迅速、資產負債表堅如磐石的公司更感興趣,那麼請立即查看我們的淨現金成長型股票清單。
對這篇文章有什麼反饋嗎?擔心內容嗎? 保持聯繫直接與我們聯繫。或者,也可以給編輯組發電子郵件,地址是implywallst.com。
本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。
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在加拿大,透過moomoo應用程式提供的僅限訂單執行的券商服務由Moomoo Financial Canada Inc.提供,並受加拿大投資監管機構(CIRO)監管。
在馬來西亞,moomoo上的投資產品和服務是透過Moomoo Securities Malaysia Sdn. Bhd. 提供,該公司受馬來西亞證券監督委員會(SC)監管(牌照號碼︰eCMSL/A0397/2024) ,持有資本市場服務牌照 (CMSL) 。本內容未經馬來西亞證券監督委員會的審查。
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., 是關聯公司。
風險及免責聲明
moomoo是Moomoo Technologies Inc.公司提供的金融資訊和交易應用程式。
在美國,moomoo上的投資產品和服務由Moomoo Financial Inc.提供,一家受美國證券交易委員會(SEC)監管的持牌主體。 Moomoo Financial Inc.是金融業監管局(FINRA)和證券投資者保護公司(SIPC)的成員。
在新加坡,moomoo上的投資產品和服務是通過Moomoo Financial Singapore Pte. Ltd.提供,該公司受新加坡金融管理局(MAS)監管(牌照號碼︰CMS101000) ,持有資本市場服務牌照 (CMS) ,持有財務顧問豁免(Exempt Financial Adviser)資質。本內容未經新加坡金融管理局的審查。
在澳大利亞,moomoo上的金融產品和服務是通過Futu Securities (Australia) Ltd提供,該公司是受澳大利亞證券和投資委員會(ASIC)監管的澳大利亞金融服務許可機構(AFSL No. 224663)。請閱讀並理解我們的《金融服務指南》、《條款與條件》、《隱私政策》和其他披露文件,這些文件可在我們的網站 https://www.moomoo.com/au中獲取。
在加拿大,透過moomoo應用程式提供的僅限訂單執行的券商服務由Moomoo Financial Canada Inc.提供,並受加拿大投資監管機構(CIRO)監管。
在馬來西亞,moomoo上的投資產品和服務是透過Moomoo Securities Malaysia Sdn. Bhd. 提供,該公司受馬來西亞證券監督委員會(SC)監管(牌照號碼︰eCMSL/A0397/2024) ,持有資本市場服務牌照 (CMSL) 。本內容未經馬來西亞證券監督委員會的審查。
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., 是關聯公司。
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