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. As with many other companies Zhejiang Windey Co.,Ltd. (SZSE:300772) makes use of debt. But should shareholders be worried about its use of debt?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Zhejiang WindeyLtd
What Is Zhejiang WindeyLtd's Debt?
The image below, which you can click on for greater detail, shows that Zhejiang WindeyLtd had debt of CN¥749.9m at the end of March 2022, a reduction from CN¥991.7m over a year. However, its balance sheet shows it holds CN¥4.05b in cash, so it actually has CN¥3.30b net cash.
SZSE:300772 Debt to Equity History August 16th 2022
A Look At Zhejiang WindeyLtd's Liabilities
Zooming in on the latest balance sheet data, we can see that Zhejiang WindeyLtd had liabilities of CN¥19.3b due within 12 months and liabilities of CN¥2.48b due beyond that. On the other hand, it had cash of CN¥4.05b and CN¥8.58b worth of receivables due within a year. So its liabilities total CN¥9.10b more than the combination of its cash and short-term receivables.
This deficit is considerable relative to its market capitalization of CN¥13.5b, so it does suggest shareholders should keep an eye on Zhejiang WindeyLtd's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Zhejiang WindeyLtd also has more cash than debt, so we're pretty confident it can manage its debt safely.
Better yet, Zhejiang WindeyLtd grew its EBIT by 295% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. 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 Zhejiang WindeyLtd 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Zhejiang WindeyLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Zhejiang WindeyLtd 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.
Summing Up
Although Zhejiang WindeyLtd's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of CN¥3.30b. And we liked the look of last year's 295% year-on-year EBIT growth. So we don't have any problem with Zhejiang WindeyLtd's use of 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Zhejiang WindeyLtd (of which 1 is a bit unpleasant!) you should know about.
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.
傳奇基金經理理想汽車·盧曾説,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。當我們考慮一家公司的風險有多大時,我們總是喜歡看它對債務的使用,因為債務過重可能導致破產。與許多其他公司一樣浙江温迪股份有限公司(SZSE:300772)利用債務。但股東是否應該擔心它的債務使用情況?
為什麼債務會帶來風險?
債務幫助企業,直到企業難以償還債務,無論是用新資本還是用自由現金流。最終,如果公司不能履行其償還債務的法定義務,股東可能會一無所有地離開。然而,更常見(但代價仍然高昂)的情況是,一家公司必須以極低的價格發行股票,永久性地稀釋股東的股份,只是為了支撐其資產負債表。話雖如此,最常見的情況是一家公司對債務管理得相當好--並對自己有利。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。
查看我們對浙江WindeyLtd.的最新分析
浙江WindeyLtd的債務是什麼?
你可以點擊查看更多詳細信息的下圖顯示,截至2022年3月底,浙江WindeyLtd的債務為7.499億加元,較一年內的9.917億加元有所減少。然而,其資產負債表顯示,它持有人民幣40.5億元的現金,因此它實際上擁有人民幣33億元的淨現金。
深圳證交所:300772債轉股歷史2022年8月16日
浙江WindeyLtd負債情況一瞥
放大最新的資產負債表數據,我們可以看到浙江温德股份有限公司有193億加元的負債在12個月內到期,還有24.8億加元的負債在12個月內到期。另一方面,一年內有現金40.5億元和應收賬款85.8億元到期。因此,其負債總額為人民幣91億元,比現金和短期應收賬款的總和還要多。
與其135億元的市值相比,這一赤字是相當可觀的,因此這確實表明股東應該密切關注浙江WindeyLtd的債務使用情況。如果它的貸款人要求它支撐資產負債表,股東可能會面臨嚴重的稀釋。儘管浙江WindeyLtd確實有值得注意的負債,但它的現金也多於債務,所以我們非常有信心它能夠安全地管理債務。
更好的是,浙江WindeyLtd去年息税前利潤增長了295%,這是一個令人印象深刻的進步。如果保持這樣的增長,未來幾年的債務將變得更加可控。毫無疑問,我們從資產負債表中瞭解到的債務最多。但最終,該業務未來的盈利能力將決定浙江WindeyLtd能否隨着時間的推移加強其資產負債表。因此,如果你想看看專業人士的想法,你可能會發現這份關於分析師利潤預測的免費報告很有趣。
最後,儘管税務人員可能喜歡會計利潤,但貸款人只接受冷硬現金。浙江WindeyLtd的資產負債表上可能有淨現金,但看看該業務將息税前收益(EBIT)轉換為自由現金流的情況仍很有趣,因為這將影響其對債務的需求和管理債務的能力。在過去的三年裏,浙江WindeyLtd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。
總結
儘管浙江文德的資產負債表不是特別強勁,但由於總負債,它的淨現金為33億元人民幣,這顯然是積極的。我們喜歡去年息税前利潤同比增長295%的表現。因此,我們對浙江WindeyLtd的債務使用沒有任何問題。毫無疑問,我們從資產負債表中瞭解到的債務最多。然而,並非所有投資風險都存在於資產負債表中--遠非如此。這些風險可能很難發現。每家公司都有它們,我們已經發現浙江WindeyLtd.的3個警示標誌(其中1個有點不愉快!)你應該知道。
歸根結底,關注那些沒有淨債務的公司往往更好。你可以訪問我們的這類公司的特別名單(都有利潤增長的記錄)。這是免費的。
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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。