Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Apollo Future Mobility Group Limited (HKG:860) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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 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. 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 Apollo Future Mobility Group

What Is Apollo Future Mobility Group's Net Debt?

As you can see below, at the end of March 2022, Apollo Future Mobility Group had HK$292.6m of debt, up from HK$68.9m a year ago. Click the image for more detail. On the flip side, it has HK$252.7m in cash leading to net debt of about HK$39.9m.

How Healthy Is Apollo Future Mobility Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Apollo Future Mobility Group had liabilities of HK$1.38b due within 12 months and liabilities of HK$143.7m due beyond that. On the other hand, it had cash of HK$252.7m and HK$691.4m worth of receivables due within a year. So it has liabilities totalling HK$577.8m more than its cash and near-term receivables, combined.

Since publicly traded Apollo Future Mobility Group shares are worth a total of HK$3.13b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Apollo Future Mobility Group has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Apollo Future Mobility Group's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Apollo Future Mobility Group reported revenue of HK$751m, which is a gain of 120%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Even though Apollo Future Mobility Group managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at HK$127m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through HK$112m of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Apollo Future Mobility Group has 1 warning sign we think you should be aware of.

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.

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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.