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Is City Developments (SGX:C09) A Risky Investment?
Is City Developments (SGX:C09) A Risky Investment?
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.' 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, City Developments Limited (SGX:C09) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.
Check out our latest analysis for City Developments
What Is City Developments's Net Debt?
You can click the graphic below for the historical numbers, but it shows that City Developments had S$9.39b of debt in June 2022, down from S$11.5b, one year before. However, it does have S$2.16b in cash offsetting this, leading to net debt of about S$7.22b.
SGX:C09 Debt to Equity History September 10th 2022How Healthy Is City Developments' Balance Sheet?
According to the last reported balance sheet, City Developments had liabilities of S$6.48b due within 12 months, and liabilities of S$6.96b due beyond 12 months. Offsetting this, it had S$2.16b in cash and S$1.94b in receivables that were due within 12 months. So its liabilities total S$9.34b more than the combination of its cash and short-term receivables.
When you consider that this deficiency exceeds the company's S$7.64b 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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Weak interest cover of 1.7 times and a disturbingly high net debt to EBITDA ratio of 14.6 hit our confidence in City Developments like a one-two punch to the gut. This means we'd consider it to have a heavy debt load. However, the silver lining was that City Developments achieved a positive EBIT of S$254m in the last twelve months, an improvement on the prior year's loss. 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 City Developments 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Over the last year, City Developments actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Our View
To be frank both City Developments's interest cover and its track record of managing its debt, based on its EBITDA, make us rather uncomfortable with its debt levels. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. Once we consider all the factors above, together, it seems to us that City Developments's debt is making it a bit risky. Some people like that sort of risk, but we're mindful of the potential pitfalls, so we'd probably prefer it carry less 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. For example City Developments has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.
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.
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。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。重要的是城市發展有限公司(SGX:C09)確實有債務。但股東是否應該擔心它的債務使用情況?
什麼時候債務是個問題?
當一家企業無法輕鬆履行這些義務時,債務和其他債務就會變得有風險,無論是通過自由現金流還是通過以有吸引力的價格籌集資本。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。儘管這並不常見,但我們確實經常看到負債累累的公司永久性地稀釋股東的權益,因為貸款人迫使他們以令人沮喪的價格籌集資金。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。
查看我們對城市發展的最新分析
City Developments的淨債務是多少?
你可以點擊下圖查看歷史數據,但它顯示,City Developments在2022年6月的債務為93.9億新元,低於一年前的115億新元。然而,它確實有21.6億新元的現金來抵消這一點,導致淨債務約為72.2億新元。
新交所:C09債轉股歷史2022年9月10日City Development的資產負債表有多健康?
根據最新報告的資產負債表,City Developments有64.8億新加坡元的負債在12個月內到期,69.6億新加坡元的負債在12個月後到期。作為抵消,該公司有21.6億新元的現金和19.4億新元的應收賬款在12個月內到期。因此,它的負債總額比現金和短期應收賬款的總和還要多93.4億新元。
當你考慮到這一缺口超過了該公司76.4億新元的市值時,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)。因此,我們考慮債務相對於收益,包括折舊和攤銷費用。
1.7倍的疲軟利息覆蓋率,以及令人不安的高得令人不安的淨債務與EBITDA之比14.6,打擊了我們對City Development的信心,就像對腸子的一擊。這意味着我們會認為它有沉重的債務負擔。然而,一線希望是,City Developments在過去12個月實現了2.54億新元的正息税前利潤,較前一年的虧損有所改善。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City Developments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,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,重要的是要檢查其息税前收益(EBIT)中有多少轉換為實際的自由現金流。在過去的一年裏,City Development實際上產生了比息税前利潤更多的自由現金流。這種強大的搖錢樹就像一隻穿着大黃蜂西裝的小狗一樣温暖着我們的心。
我們的觀點
坦率地説,City Developments的利息覆蓋率及其基於EBITDA管理債務的記錄,都讓我們對其債務水平感到相當不安。但至少它在將息税前利潤轉化為自由現金流方面相當不錯;這是令人鼓舞的。一旦我們考慮到上述所有因素,在我們看來,City Developments的債務似乎讓它變得有點風險。有些人喜歡這種風險,但我們注意到了潛在的陷阱,所以我們可能更喜歡它揹負更少的債務。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。例如,City Developments擁有4個警示標誌(2)我們認為你應該知道這一點。
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。
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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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