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, Kerry Properties Limited (HKG:683) does carry debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Kerry Properties
What Is Kerry Properties's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2022 Kerry Properties had HK$60.1b of debt, an increase on HK$45.5b, over one year. However, it does have HK$16.2b in cash offsetting this, leading to net debt of about HK$44.0b.
SEHK:683 Debt to Equity History September 22nd 2022
A Look At Kerry Properties' Liabilities
The latest balance sheet data shows that Kerry Properties had liabilities of HK$20.1b due within a year, and liabilities of HK$67.0b falling due after that. Offsetting this, it had HK$16.2b in cash and HK$3.06b in receivables that were due within 12 months. So it has liabilities totalling HK$67.9b more than its cash and near-term receivables, combined.
This deficit casts a shadow over the HK$23.9b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Kerry Properties would probably need a major re-capitalization if its creditors were to demand repayment.
We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
As it happens Kerry Properties has a fairly concerning net debt to EBITDA ratio of 6.4 but very strong interest coverage of 308. So either it has access to very cheap long term debt or that interest expense is going to grow! Shareholders should be aware that Kerry Properties's EBIT was down 21% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Kerry Properties's ability to maintain a healthy balance sheet going forward. 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 we always check how much of that EBIT is translated into free cash flow. During the last three years, Kerry Properties produced sturdy free cash flow equating to 67% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.
Our View
To be frank both Kerry Properties's EBIT growth rate 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. Overall, it seems to us that Kerry Properties's balance sheet is really quite a risk to the business. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Kerry Properties has 2 warning signs (and 1 which is a bit concerning) 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.
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。重要的是嘉裏置業有限公司(HKG:683)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。
債務會帶來什麼風險?
債務是幫助企業發展的一種工具,但如果一家企業無法償還貸款人的債務,那麼它就只能聽從貸款人的擺佈。如果情況真的變得很糟糕,貸款人可以控制業務。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。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。在考慮一家公司的債務水平時,第一步是同時考慮其現金和債務。
查看我們對嘉裏地產的最新分析
嘉裏地產的淨債務是多少?
你可以點擊下圖查看歷史數字,但它顯示,截至2022年6月,嘉裏地產的債務為601億港元,比一年前增加了455億港元。然而,它確實有162億港元的現金抵消了這一影響,導致淨債務約為440億港元。
聯交所:683債轉股歷史2022年9月22日
嘉裏地產的負債問題
最新的資產負債表數據顯示,嘉裏地產有201億港元的負債在一年內到期,670億港元的負債在一年內到期。作為抵消,該公司有162億港元的現金和30.6億港元的應收賬款在12個月內到期。因此,該公司的負債總額為679億港元,比其現金和近期應收賬款的總和還要多。
這一赤字給這家市值239億港元的公司蒙上了一層陰影,就像一個龐然大物聳立在凡人之上。因此,毫無疑問,我們會密切關注它的資產負債表。歸根結底,如果債權人要求償還債務,嘉裏地產可能需要進行大規模的資本重組。
我們使用兩個主要比率來告知我們債務相對於收益的水平。第一個是淨債務除以利息、税項、折舊和攤銷前收益(EBITDA),第二個是其息税前收益(EBIT)覆蓋其利息支出(或簡稱利息覆蓋)的多少倍。因此,我們考慮債務相對於收益,包括折舊和攤銷費用。
碰巧的是,Kerry Properties的淨債務與EBITDA之比相當令人擔憂,為6.4倍,但利息覆蓋率非常高,為308倍。因此,要麼它可以獲得非常便宜的長期債務,要麼利息支出將會增長!股東們應該知道,嘉裏地產去年的息税前利潤下降了21%。如果這種盈利趨勢持續下去,那麼償還債務就像把貓趕上過山車一樣容易。當你分析債務時,資產負債表顯然是你關注的領域。但最重要的是,未來的收益將決定嘉裏地產未來能否保持健康的資產負債表。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,我們總是檢查EBIT中有多少轉化為自由現金流。在過去的三年裏,嘉裏地產產生了相當於息税前利潤67%的強勁自由現金流,這與我們預期的差不多。這種冷酷的現金意味着,它可以在想要的時候減少債務。
我們的觀點
坦率地説,嘉裏地產的息税前利潤增長率,以及其控制總負債的過往記錄,都讓我們對其債務水平感到相當不安。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。總體而言,在我們看來,嘉裏地產的資產負債表確實對該業務構成了相當大的風險。因此,我們對這種動物的警惕幾乎就像飢餓的小貓害怕掉進主人的魚塘一樣:正如他們所説的那樣,一次被咬,加倍害羞。毫無疑問,我們從資產負債表中瞭解到的債務最多。但歸根結底,每家公司都可能包含存在於資產負債表之外的風險。例如,嘉裏地產擁有2個警告標誌(還有一點令人擔憂)我們認為你應該知道。
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。
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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。