Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that China Overseas Property Holdings Limited (HKG:2669) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for China Overseas Property Holdings
How Much Debt Does China Overseas Property Holdings Carry?
As you can see below, at the end of June 2022, China Overseas Property Holdings had HK$449.8m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has HK$3.56b in cash, leading to a HK$3.11b net cash position.
SEHK:2669 Debt to Equity History September 26th 2022
How Strong Is China Overseas Property Holdings' Balance Sheet?
We can see from the most recent balance sheet that China Overseas Property Holdings had liabilities of HK$5.65b falling due within a year, and liabilities of HK$121.6m due beyond that. Offsetting these obligations, it had cash of HK$3.56b as well as receivables valued at HK$3.06b due within 12 months. So it can boast HK$838.3m more liquid assets than total liabilities.
This short term liquidity is a sign that China Overseas Property Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that China Overseas Property Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.
On top of that, China Overseas Property Holdings grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its 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 China Overseas Property Holdings 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While China Overseas Property Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, China Overseas Property Holdings's free cash flow amounted to 44% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that China Overseas Property Holdings has net cash of HK$3.11b, as well as more liquid assets than liabilities. And we liked the look of last year's 36% year-on-year EBIT growth. So is China Overseas Property Holdings's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of China Overseas Property Holdings's earnings per share history for free.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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.
馬克斯説得很好,他不是擔心股價波動,而是我擔心的是永久虧損的可能性……我認識的每個實際投資者都擔心。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。我們注意到中國海外置業集團有限公司(HKG:2669)的資產負債表上確實有債務。但真正的問題是,這筆債務是否讓該公司面臨風險。
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。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。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。當考慮一家企業使用了多少債務時,首先要做的是把現金和債務放在一起看。
查看我們對中國海外地產控股公司的最新分析
中國海外地產控股公司揹負着多少債務?
如下所示,截至2022年6月底,中國海外地產控股有限公司(China Overseas Property Holdings)的債務為4.498億港元,而一年前為零。單擊圖像瞭解更多詳細信息。但另一方面,它也擁有35.6億港元的現金,導致其淨現金頭寸為31.1億港元。
聯交所:2669債轉股歷史2022年9月26日
中國海外地產控股公司的資產負債表有多強勁?
我們可以從最近的資產負債表中看到,中國海外地產控股有限公司有56.5億港元的負債在一年內到期,而在這之後還有1.216億港元的負債到期。該公司有35.6億港元的現金及30.6億港元的應收賬款於12個月內到期,以抵銷這些債務。因此,它可以號稱擁有比總計負債。
這種短期流動性是一個跡象,表明中國海外地產控股有限公司(China Overseas Property Holdings)很可能可以輕鬆償還債務,因為該公司的資產負債表遠未捉襟見肘。簡而言之,中國海外地產控股有限公司的現金多於債務的事實,可以説是一個很好的跡象,表明它能夠安全地管理債務。
最重要的是,中國海外地產控股有限公司在過去12個月中息税前利潤增長了36%,這一增長將使其更容易處理債務。在分析債務水平時,資產負債表顯然是一個起點。但歸根結底,該業務未來的盈利能力將決定中國海外地產控股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。
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。儘管中國海外地產控股公司的資產負債表上有淨現金,但它將息税前利潤(EBIT)轉換為自由現金流的能力仍值得一看,以幫助我們瞭解它正在以多快的速度建立(或侵蝕)現金餘額。過去三年,中國海外地產控股有限公司的自由現金流佔其息税前利潤的44%,低於我們的預期。這種疲軟的現金轉換增加了處理債務的難度。
總結
雖然我們同情那些對債務感到擔憂的投資者,但你應該記住,中國海外地產控股公司擁有31.1億港元的淨現金,流動資產多於負債。我們喜歡去年息税前利潤同比增長36%的表現。那麼,中國海外地產控股有限公司的債務是否存在風險?但在我們看來並非如此。在大多數其他指標中,我們認為跟蹤每股收益的增長速度(如果有的話)是很重要的。如果你也意識到了這一點,那你就幸運了,因為今天你可以免費觀看這張中國海外地產控股公司每股收益歷史的互動圖表。
當然,如果你是那種喜歡在沒有債務負擔的情況下購買股票的投資者,那麼不要猶豫,今天就來看看我們的淨現金成長型股票獨家名單。
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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。