Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We note that Do-Fluoride New Materials Co., Ltd. (SZSE:002407) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt A Problem?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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.
See our latest analysis for Do-Fluoride New Materials
How Much Debt Does Do-Fluoride New Materials Carry?
As you can see below, Do-Fluoride New Materials had CN¥2.50b of debt at June 2022, down from CN¥3.03b a year prior. However, because it has a cash reserve of CN¥2.27b, its net debt is less, at about CN¥227.1m.
SZSE:002407 Debt to Equity History September 29th 2022
A Look At Do-Fluoride New Materials' Liabilities
We can see from the most recent balance sheet that Do-Fluoride New Materials had liabilities of CN¥5.94b falling due within a year, and liabilities of CN¥2.27b due beyond that. Offsetting these obligations, it had cash of CN¥2.27b as well as receivables valued at CN¥2.66b due within 12 months. So its liabilities total CN¥3.28b more than the combination of its cash and short-term receivables.
Since publicly traded Do-Fluoride New Materials shares are worth a total of CN¥27.5b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Do-Fluoride New Materials has virtually no net debt, so it's fair to say it does not have a heavy debt load!
We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
With debt at a measly 0.068 times EBITDA and EBIT covering interest a whopping 34.7 times, it's clear that Do-Fluoride New Materials is not a desperate borrower. Indeed relative to its earnings its debt load seems light as a feather. Even more impressive was the fact that Do-Fluoride New Materials grew its EBIT by 655% over twelve months. 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 ultimately the future profitability of the business will decide if Do-Fluoride New Materials 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.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last two years, Do-Fluoride New Materials recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.
Our View
Do-Fluoride New Materials's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. But we must concede we find its conversion of EBIT to free cash flow has the opposite effect. When we consider the range of factors above, it looks like Do-Fluoride New Materials is pretty sensible with its use of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Do-Fluoride New Materials .
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.
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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.
一些人说,作为投资者,考虑风险的最佳方式是波动性,而不是债务,但巴菲特曾说过一句名言:波动性远非风险的同义词。当你考察一家公司的风险有多大时,考虑它的资产负债表是很自然的,因为当一家企业倒闭时,债务往往会涉及到它。我们注意到多氟新材料有限公司。(SZSE:002407)的资产负债表上确实有债务。但这笔债务对股东来说是一个担忧吗?
什么时候债务是个问题?
当一家企业无法轻松履行这些义务时,债务和其他债务就会变得有风险,无论是通过自由现金流还是通过以有吸引力的价格筹集资本。在最糟糕的情况下,如果一家公司无法偿还债权人的债务,它可能会破产。然而,一种更常见(但仍令人痛苦)的情景是,它不得不以低价筹集新的股本,从而永久性地稀释股东。当然,许多公司利用债务为增长提供资金,没有任何负面后果。当我们检查债务水平时,我们首先同时考虑现金和债务水平。
查看我们对含氟新材料的最新分析
氟化物新材料到底背负着多少债务?
如下所示,截至2022年6月,DO-氟化物新材料的债务为人民币25亿元,低于一年前的人民币30.3亿元。然而,由于其现金储备为22.7亿加元,其净债务较少,约为2.271亿加元。
深圳证交所:002407债转股历史2022年9月29日
看DO-氟化物新材料的负债
从最近的资产负债表可以看出,氟新材料有59.4亿元的负债在一年内到期,22.7亿元的负债在一年内到期。作为对这些债务的抵销,该公司有22.7亿加元的现金以及价值26.6亿加元的应收账款在12个月内到期。因此,它的负债总额比现金和短期应收账款的总和高出32.8亿元。
由于上市交易的含氟新材料股票总价值为人民币275亿元,这种负债水平似乎不太可能构成重大威胁。然而,我们确实认为值得关注其资产负债表的实力,因为它可能会随着时间的推移而变化。但无论如何,DO-氟化物新材料几乎没有净债务,所以公平地说,它没有沉重的债务负担!
我们使用两个主要比率来告知我们债务相对于收益的水平。第一个是净债务除以利息、税项、折旧和摊销前收益(EBITDA),第二个是其息税前收益(EBIT)覆盖其利息支出(或简称利息覆盖)的多少倍。这种方法的优点是,我们既考虑了债务的绝对数量(净债务与EBITDA之比),也考虑了与债务相关的实际利息支出(及其利息覆盖率)。
由于债务仅为息税前利润的0.068倍,息税前利润高达34.7%,很明显,无氟新材料并不是一个绝望的借款人。事实上,与其盈利相比,它的债务负担似乎轻如鸿毛。更令人印象深刻的是,DO-氟化物新材料在12个月内息税前利润增长了655%。如果保持这样的增长,未来几年的债务将变得更加可控。当你分析债务时,资产负债表显然是你关注的领域。但最终,该业务未来的盈利能力将决定无氟新材料能否随着时间的推移加强其资产负债表。所以,如果你关注未来,你可以看看这个免费显示分析师利润预测的报告。
最后,一家公司只能用冷硬现金偿还债务,而不是会计利润。因此,合乎逻辑的一步是看看息税前利润与实际自由现金流相匹配的比例。在过去的两年里,DO-氟化物新材料的自由现金流总额为负。在自由现金流为负的公司手中,债务通常更昂贵,风险也几乎总是更高。股东们应该希望情况有所改善。
我们的观点
多氟新材料的利息覆盖表明,它可以轻松地处理债务,就像克里斯蒂亚诺·罗纳尔多在对阵14岁以下门将的比赛中进球一样。但我们必须承认,我们发现它将息税前利润转换为自由现金流产生了相反的效果。当我们考虑以上因素的范围时,看起来DO-氟化物新材料在使用债务方面相当明智。这意味着他们正在承担更多的风险,希望提高股东回报。毫无疑问,我们从资产负债表中了解到的债务最多。但归根结底,每家公司都可能包含存在于资产负债表之外的风险。为此,您应该意识到2个警告标志我们发现了DO-氟化物新材料。
归根结底,关注那些没有净债务的公司往往更好。你可以访问我们的这类公司的特别名单(都有利润增长的记录)。这是免费的。
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本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。