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Is HK Electric Investments and HK Electric Investments (HKG:2638) A Risky Investment?
Is HK Electric Investments and HK Electric Investments (HKG:2638) A Risky Investment?
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.' 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, HK Electric Investments and HK Electric Investments Limited (HKG:2638) 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.
View our latest analysis for HK Electric Investments and HK Electric Investments
What Is HK Electric Investments and HK Electric Investments's Debt?
The image below, which you can click on for greater detail, shows that at June 2022 HK Electric Investments and HK Electric Investments had debt of HK$49.7b, up from HK$46.4b in one year. Net debt is about the same, since the it doesn't have much cash.
SEHK:2638 Debt to Equity History September 1st 2022A Look At HK Electric Investments and HK Electric Investments' Liabilities
Zooming in on the latest balance sheet data, we can see that HK Electric Investments and HK Electric Investments had liabilities of HK$6.80b due within 12 months and liabilities of HK$63.1b due beyond that. Offsetting these obligations, it had cash of HK$154.0m as well as receivables valued at HK$1.66b due within 12 months. So it has liabilities totalling HK$68.1b more than its cash and near-term receivables, combined.
When you consider that this deficiency exceeds the company's HK$57.4b 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). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
With a net debt to EBITDA ratio of 6.2, it's fair to say HK Electric Investments and HK Electric Investments does have a significant amount of debt. However, its interest coverage of 5.9 is reasonably strong, which is a good sign. We saw HK Electric Investments and HK Electric Investments grow its EBIT by 2.5% in the last twelve months. That's far from incredible but it is a good thing, when it comes to paying off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if HK Electric Investments and HK Electric Investments 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. In the last three years, HK Electric Investments and HK Electric Investments's free cash flow amounted to 23% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.
Our View
Mulling over HK Electric Investments and HK Electric Investments's attempt at managing its debt, based on its EBITDA,, we're certainly not enthusiastic. Having said that, its ability to cover its interest expense with its EBIT isn't such a worry. It's also worth noting that HK Electric Investments and HK Electric Investments is in the Electric Utilities industry, which is often considered to be quite defensive. Looking at the bigger picture, it seems clear to us that HK Electric Investments and HK Electric Investments's use of debt is creating risks for the company. If all goes well, that should boost returns, but on the flip side, the risk of permanent capital loss is elevated by the debt. 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. Case in point: We've spotted 2 warning signs for HK Electric Investments and HK Electric Investments you should be aware of.
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.
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。因此,當你考慮到任何一隻股票的風險有多大時,你需要考慮債務可能是顯而易見的,因為太多的債務可能會讓一家公司倒閉。重要的是港燈-SS有限公司(HKG:2638)確實有債務。但真正的問題是,這筆債務是否讓該公司面臨風險。
債務在什麼時候是危險的?
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。資本主義的一部分是“創造性破壞”的過程,破產的企業被銀行家無情地清算。然而,一種更常見(但仍令人痛苦)的情景是,它不得不以低價籌集新的股本,從而永久性地稀釋股東。然而,通過取代稀釋,對於需要資本投資於高回報率增長的企業來説,債務可以成為一個非常好的工具。當我們檢查債務水平時,我們首先同時考慮現金和債務水平。
查看我們對港燈-SS的最新分析
港燈-SS的債務是什麼?
下圖顯示,截至2022年6月,港燈-SS的債務為497億港元,高於一年內的464億港元。淨債務大致相同,因為它沒有太多現金。
聯交所:2638債轉股歷史2022年9月1日港燈-SS的債務一瞥
放大最新的資產負債表數據,我們可以看到,港燈-SS有68億港元的負債在12個月內到期,而在這之後還有631億港元的負債到期。作為這些債務的抵消,該公司有1.54億港元的現金以及價值16.6億港元的應收賬款在12個月內到期。因此,該公司的負債總額為681億港元,超過了現金和近期應收賬款的總和。
當你考慮到這一缺口超過了該公司574億港元的市值時,你很可能傾向於專心審查資產負債表。在該公司不得不迅速清理其資產負債表的情況下,股東似乎可能會遭受廣泛的稀釋。
為了評估一家公司的債務相對於它的收益,我們計算它的淨債務除以它的利息、税項、折舊和攤銷前收益(EBITDA)和它的利息和税前收益(EBIT)除以它的利息支出(它的利息覆蓋)。這樣,我們既考慮了債務的絕對量,也考慮了為其支付的利率。
港燈-SS的淨債務與息税前攤銷前利潤之比為6.2,公平地説,他確實有大量的債務。然而,其5.9%的利息覆蓋率相當強勁,這是一個好跡象。我們看到港燈-SS在過去12個月中息税前利潤增長了2.5%。這並不令人難以置信,但在償還債務方面,這是一件好事。在分析債務水平時,資產負債表顯然是一個起點。但最終,該業務未來的盈利能力將決定港燈-SS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。
但我們的最後考慮也很重要,因為一家公司不能用賬面利潤來償還債務;它需要冷硬現金。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,港燈-SS的自由現金流佔其息税前利潤的23%,低於我們的預期。當涉及到償還債務時,這並不是很好。
我們的觀點
考慮到港燈-SS基於息税折舊攤銷前利潤(EBITDA)管理其債務的嘗試,我們肯定不是很熱情。話雖如此,它用息税前利潤來支付利息支出的能力並不是那麼令人擔憂。同樣值得注意的是,港燈-SS在電力公用事業行業,這個行業通常被認為是相當防禦性的。從更大的角度來看,我們似乎很清楚,港燈-SS的債務使用正在給公司帶來風險。如果一切順利,這應該會提高回報,但另一方面,債務增加了永久資本損失的風險。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。一個恰當的例子:我們發現了港燈-SS的2個警示標誌你應該意識到。
如果你有興趣投資於可以在沒有債務負擔的情況下增長利潤的企業,那麼看看這個免費資產負債表上有淨現金的成長型企業名單。
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。
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。
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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