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, Yuexiu Transport Infrastructure Limited (HKG:1052) does carry debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Yuexiu Transport Infrastructure's Net Debt?
The chart below, which you can click on for greater detail, shows that Yuexiu Transport Infrastructure had CN¥17.1b in debt in December 2023; about the same as the year before. However, it does have CN¥2.38b in cash offsetting this, leading to net debt of about CN¥14.7b.
How Strong Is Yuexiu Transport Infrastructure's Balance Sheet?
We can see from the most recent balance sheet that Yuexiu Transport Infrastructure had liabilities of CN¥7.83b falling due within a year, and liabilities of CN¥13.8b due beyond that. Offsetting this, it had CN¥2.38b in cash and CN¥253.8m in receivables that were due within 12 months. So its liabilities total CN¥19.0b more than the combination of its cash and short-term receivables.
The deficiency here weighs heavily on the CN¥5.93b 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. At the end of the day, Yuexiu Transport Infrastructure would probably need a major re-capitalization if its creditors were to demand repayment.
We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Yuexiu Transport Infrastructure's debt is 5.0 times its EBITDA, and its EBIT cover its interest expense 3.2 times over. Taken together this implies that, while we wouldn't want to see debt levels rise, we think it can handle its current leverage. On the other hand, Yuexiu Transport Infrastructure grew its EBIT by 27% in the last year. If sustained, this growth should make that debt evaporate like a scarce drinking water during an unnaturally hot summer. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Yuexiu Transport Infrastructure 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 we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Happily for any shareholders, Yuexiu Transport Infrastructure actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.
Our View
We feel some trepidation about Yuexiu Transport Infrastructure's difficulty level of total liabilities, but we've got positives to focus on, too. To wit both its conversion of EBIT to free cash flow and EBIT growth rate were encouraging signs. It's also worth noting that Yuexiu Transport Infrastructure is in the Infrastructure industry, which is often considered to be quite defensive. Looking at all the angles mentioned above, it does seem to us that Yuexiu Transport Infrastructure is a somewhat risky investment as a result of its debt. Not all risk is bad, as it can boost share price returns if it pays off, but this debt risk is worth keeping in mind. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Yuexiu Transport Infrastructure (of which 1 is a bit unpleasant!) you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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.
ハワード・マークスは、株価の変動を心配するよりも、「永続的な損失の可能性が私が心配するリスクであり…私が知っている実践的な投資家全員が心配することです。」とうまく表現しました。したがって、ある株のリスクを考える際には、債務も考慮する必要があります。なぜなら、債務が多すぎると会社を沈める可能性があるからです。重要なことは、Yuexiu Transport Infrastructure Limitedは債務を抱えていることです。しかし、より重要なのは、その債務がどれほどのリスクを生み出しているかということです。
下のチャートは、クリックして詳細を表示できますが、Yuexiu Transport Infrastructureが2023年12月にCN¥17.1bの債務を抱えていることを示しています。前年とほぼ同じです。ただし、これに対するCN¥2.38bの現金があるため、净債務はCN¥14.7b程度です。
SEHK:1052債務対純資産の履歴
最新の貸借対照表から、Yuexiu Transport Infrastructureは1年以内にCN¥7.83bの債務と、それを超えるCN¥13.8bの債務を抱えていました。これに対して、現金はCN¥2.38b、12ヶ月以内に支払われる債権はCN¥253.8mを抱えていました。したがって、負債は現金と短期債権の合計よりもCN¥19.0b多くなっています。
この不足は、CN¥5.93bの会社そのものに重くのしかかります。高校生が本やスポーツ用品、トランペットが詰まった大きなバックパックを背負って苦しんでいるようなものです。つまり、投資家はこの問題に厳重に注意する必要があると考えます。最終的に、貸し手が償還を要求した場合、Yuexiu Transport Infrastructureはおそらく大量資本調達が必要になるでしょう。
当社は、債務がEBITDAに対しネット債務比率で割った割合と、利息費用をカバーするEBITで債務を割った比率(利息カバー)を考慮して、会社の債務負担を決定します。つまり、債務を減価償却費や売上高面積を含めるかどうかに関係なく、収益に対する債務を計測します。Yuexiu Transport Infrastructureの債務は、EBITDAに対して5.0倍であり、EBITは利息費用を3.2倍カバーしています。これらの数字から、現状のレバレッジに対応できると考えていますが、債務レベルが上昇するのは望ましくありません。それに対して、Yuexiu Transport Infrastructureは昨年27%のEBIT成長を達成しました。この成長が持続される場合、この債務は自然蒸発するでしょう。
債務水準を分析するにあたり、バランスシートが最も重要な観点となります。しかしながら、投資のすべてのリスクがバランスシートにあるわけではありません。これらのリスクを発見するのは困難です。すべての会社にリスクがあり、私たちはYuexiu Transport Infrastructureに関して、これらのリスクのうち2つの警告サインを発見しました(うち1つは少しくさいです)。必ずしもそのような企業が債務無しに注目すべきであるとは限りません。そのため、この無料のアナリスト収益予測レポートを見ることを検討してください。
結局のところ、重要なのは、企業が債務を返済するためのフリーキャッシュフローが必要です。流動収益だけでは足りません。したがって、我々は当社のEBITが相応するフリーキャッシュフローにつながっているかどうかを確認する必要があります。残念ながら、Yuexiu Transport Infrastructureは過去3年間にEBITを上回るフリーキャッシュフローを生み出しています。そのような強力なキャッシュ変換は、Daft Punkのコンサートでビートが落ちる瞬間に群衆が興奮するように、私たちを熱狂させます。
私たちはYuexiu Transport Infrastructureの財務状況全体について慎重な考えを持っていますが、肯定的な面もあります。つまり、EBITのキャッシュフロー変換率とEBIT成長率が良好であることです。Yuexiu Transport Infrastructureは、防御的と考えられるインフラストラクチャー産業に位置しています。上記のすべての側面を見て、Yuexiu Transport Infrastructureは債務のためにいくぶんかリスキーな投資であると私たちは考えます。リスクは全て悪いわけではなく、もし成功すれば株価のリターンを増加させることができます。ただし、債務リスクには十分に留意すべきです。債務水準を分析する際には、バランスシートを重視することが望ましいです。