David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Haidilao International Holding Ltd. (HKG:6862) does use debt in its business. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Haidilao International Holding Carry?
The image below, which you can click on for greater detail, shows that Haidilao International Holding had debt of CN¥2.76b at the end of December 2023, a reduction from CN¥4.68b over a year. However, it does have CN¥11.4b in cash offsetting this, leading to net cash of CN¥8.61b.
How Strong Is Haidilao International Holding's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Haidilao International Holding had liabilities of CN¥7.24b due within 12 months and liabilities of CN¥5.92b due beyond that. Offsetting this, it had CN¥11.4b in cash and CN¥1.42b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥380.0m.
Having regard to Haidilao International Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CN¥88.6b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Haidilao International Holding boasts net cash, so it's fair to say it does not have a heavy debt load!
Better yet, Haidilao International Holding grew its EBIT by 168% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. 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 Haidilao International Holding'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.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. Haidilao International Holding may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Haidilao International Holding produced sturdy free cash flow equating to 56% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
We could understand if investors are concerned about Haidilao International Holding's liabilities, but we can be reassured by the fact it has has net cash of CN¥8.61b. And we liked the look of last year's 168% year-on-year EBIT growth. So is Haidilao International Holding's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 1 warning sign for Haidilao International Holding that you should be aware of before investing here.
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.
デビッド・アイベン氏はこう言いました。 「変動性は私たちが心配するリスクではありません。私たちが心配するのは、資本の恒久的な損失を避けることです。」事業の崩壊には債務が関係しているため、どのくらいリスキーかを調べる場合は、企業のバランスシートを検討するのが自然である。Haidilao International Holding Ltd.(HKG:6862)が事業で債務を負っていることがわかります。しかし、本当の問題は、この債務が企業をリスキーにしているかどうかです。
Haidilao International Holdingのバランスシートの最新データに注目すると、12か月以内にCN¥7.24bの負債と、それ以上のCN¥5.92bの負債があることがわかります。これに対して、現金がCN¥11.4b、12か月以内に支払われるべき債権がCN¥1.42bあります。つまり、負債は現金と(近い将来の)売掛債権の合計を上回ってCN¥380.0mあります。
Haidilao International Holdingの規模を考慮すると、流動資産は総負債とバランスがとれているようです。したがって、CN¥88.6b企業がキャッシュ不足に陥る可能性は非常に低いですが、バランスシートに注意を払う価値があります。債務が目立つにもかかわらず、Haidilao International Holdingは純現金であるため、大きな債務負担を抱えているわけではありません。
さらに、Haidilao International Holdingは昨年EBITを168%増やし、印象的な改善を遂げました。この成長が維持される場合、将来の年においてさらに債務はより管理しやすくなるでしょう。バランスシートは債務を分析する際には明確に重要な領域です。しかし、バランスシートに含まれない投資リスクもあることに注意が必要です。たとえば、投資する前に知っておくべきHaidilao International Holdingについての警告が1つあることが分かりました。
ビジネス分析を行う場合、バランスシートを重点的に分析することになります。しかしながら、今後の収益性がHaidilao International Holdingの健全なバランスシートを維持するために決定的な役割を果たすことになります。プロの分析結果に関連する情報に興味がある場合は、このアナリストの収益予測に関する無料レポートを読んでみることも面白いかもしれません。
最後に、企業は利益会計ではなく、現金で債務を返済することができます。Haidilao International Holdingはバランスシート上で純現金を保有しているかもしれませんが、企業がその利益をいかにフリーキャッシュフローに変え、それに基づいて債務を管理することで借入費用を引き下げることができるかどうかを調べるのは興味深いことです。適切な場合、支払いやすいようにするのに十分な自由現金流を生み出すことができます。
私たちはHaidilao International Holdingの負債について懸念を抱く投資家がいることが理解できますが、CN¥8.61bの純現金を保有している点で安心できます。また、昨年の168%の年間EBIT成長にも好感を持っています。つまり、Haidilao International Holdingの債務はリスクですか?私たちにはそうではないように思われます。債務レベルを分析する際には、バランスシートが最も明確な始点になります。しかし、投資リスクはバランスシートだけに限られるわけではありません。たとえば、ここで投資する前に知っておくべきHaidilao International Holdingに関する警告が1つあります。