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.' 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, Studio City International Holdings Limited (NYSE:MSC) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
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 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Studio City International Holdings
What Is Studio City International Holdings's Net Debt?
The chart below, which you can click on for greater detail, shows that Studio City International Holdings had US$2.43b in debt in September 2023; about the same as the year before. However, because it has a cash reserve of US$293.0m, its net debt is less, at about US$2.14b.
How Healthy Is Studio City International Holdings' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Studio City International Holdings had liabilities of US$131.9m due within 12 months and liabilities of US$2.45b due beyond that. On the other hand, it had cash of US$293.0m and US$41.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$2.25b.
The deficiency here weighs heavily on the US$1.01b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Studio City International Holdings would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Studio City International Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Over 12 months, Studio City International Holdings reported revenue of US$309m, which is a gain of 764%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!
Caveat Emptor
Even though Studio City International Holdings managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping US$112m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of US$200m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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, we've discovered 2 warning signs for Studio City International Holdings (1 is significant!) that you should be aware of before investing here.
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.
這裏的缺陷給這家價值10.1億美元的公司本身造成了沉重的壓力,好像一個孩子在裝滿書本、運動裝備和喇叭的巨大揹包的重壓下掙扎着。因此,我們絕對認爲股東需要密切關注這個問題。畢竟,如果Studio City International Holdings今天必須向債權人付款,則可能需要進行大規模資本重組。資產負債表顯然是分析債務時需要關注的領域。但是你不能完全孤立地看待債務;因爲Studio City International Holdings需要收益來償還債務。因此,在考慮債務時,絕對值得一看收益趨勢。點擊此處查看交互式快照。
儘管Studio City International Holdings成功地實現了收入增長,但冷酷的事實是,它在息稅前利潤線上虧損。其息稅前利潤虧損高達1.12億美元。當我們將其與巨額負債一起看時,我們對公司並不特別有信心。在對股票過於感興趣之前,我們希望看到一些強勁的短期改善。可以公平地說,2億美元的損失也沒有鼓勵我們;我們希望看到盈利。同時,我們認爲該股票存在風險。毫無疑問,我們從資產負債表中學到的關於債務的知識最多。但是,並非所有的投資風險都存在於資產負債表中,遠非如此。例如,我們發現了 Studio City International Holdings 的 2 個警告標誌(1 個很重要!)在這裏投資之前,您應該注意這一點。