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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Riverine China Holdings Limited (HKG:1417) makes use of debt. But should shareholders be worried about its use of debt?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Riverine China Holdings
What Is Riverine China Holdings's Debt?
The image below, which you can click on for greater detail, shows that at June 2022 Riverine China Holdings had debt of CN¥137.1m, up from CN¥86.8m in one year. However, it also had CN¥99.0m in cash, and so its net debt is CN¥38.1m.
![debt-equity-history-analysis](https://usnewsfile.futunn.com/pic/0-16377307-0-0814fa43e551dc7d8fb72902ced551fd.png/big)
SEHK:1417 Debt to Equity History November 3rd 2022
How Healthy Is Riverine China Holdings' Balance Sheet?
We can see from the most recent balance sheet that Riverine China Holdings had liabilities of CN¥418.1m falling due within a year, and liabilities of CN¥191.3m due beyond that. Offsetting this, it had CN¥99.0m in cash and CN¥332.7m in receivables that were due within 12 months. So it has liabilities totalling CN¥177.7m more than its cash and near-term receivables, combined.
Since publicly traded Riverine China Holdings shares are worth a total of CN¥1.14b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.
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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
With net debt sitting at just 0.56 times EBITDA, Riverine China Holdings is arguably pretty conservatively geared. And this view is supported by the solid interest coverage, with EBIT coming in at 8.1 times the interest expense over the last year. In addition to that, we're happy to report that Riverine China Holdings has boosted its EBIT by 86%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Riverine China Holdings will need earnings to service that debt. 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.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it's worth checking how much of that EBIT is backed by free cash flow. In the last three years, Riverine China Holdings created free cash flow amounting to 19% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.
Our View
Happily, Riverine China Holdings's impressive EBIT growth rate implies it has the upper hand on its debt. But truth be told we feel its conversion of EBIT to free cash flow does undermine this impression a bit. All these things considered, it appears that Riverine China Holdings can comfortably handle its current debt levels. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it's worth keeping an eye on this one. 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 instance, we've identified 2 warning signs for Riverine China Holdings that you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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。当我们考虑一家公司的风险有多大时,我们总是喜欢看它对债务的使用,因为债务过重可能导致破产。与许多其他公司一样河畔中国控股有限公司(HKG:1417)利用债务。但股东是否应该担心它的债务使用情况?
为什么债务会带来风险?
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(但仍然昂贵)的情况是,一家公司必须以低廉的股价稀释股东的股份,才能控制债务。然而,通过取代稀释,对于需要资本投资于高回报率增长的企业来说,债务可以成为一个非常好的工具。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。
参见我们对江河中国控股的最新分析
江河中国控股的债务是什么?
你可以点击查看更多细节的下图显示,截至2022年6月,中国控股的债务为1.371亿加元,高于一年内的8680万加元。然而,它也有9900万元现金,因此其净债务为3810万元。
![debt-equity-history-analysis](https://usnewsfile.futunn.com/pic/0-16377307-0-0814fa43e551dc7d8fb72902ced551fd.png/big)
联交所:1417债转股历史2022年11月3日
江河中国控股的资产负债表有多健康?
从最新的资产负债表可以看到,中国控股有4.181亿元的负债在一年内到期,超过一年的负债有1.913亿元的负债到期。作为抵消,它有9900万加元的现金和3.327亿加元的应收账款在12个月内到期。因此,它的负债总额比现金和近期应收账款加起来还要多1.77亿元。
由于上市交易的中国控股的股票总价值为11.4亿元人民币,这种负债水平似乎不太可能构成重大威胁。话虽如此,很明显,我们应该继续监控它的资产负债表,以免它变得更糟。
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。因此,我们考虑债务相对于收益,包括折旧和摊销费用。
中国控股的净债务仅为息税折旧摊销前利润的0.56倍,其杠杆率可以说相当保守。这一观点得到了坚实的利息覆盖率的支持,息税前利润是去年利息支出的8.1倍。除此之外,我们很高兴地报告,中国控股已将息税前利润提高了86%,从而降低了未来偿还债务的幽灵。在分析债务水平时,资产负债表显然是一个起点。但你不能完全孤立地看待债务,因为中国控股需要盈利来偿还债务。因此,如果你热衷于了解更多关于它的收益,可能值得查看一下它的长期收益趋势图。
最后,企业需要自由现金流来偿还债务;会计利润只是不能削减这一点。因此,有必要检查这笔息税前利润中有多少是由自由现金流支持的。在过去的三年里,河河中国控股创造了相当于息税前利润19%的自由现金流,这是一个平淡无奇的表现。这种疲软的现金转换水平削弱了它管理和偿还债务的能力。
我们的观点
令人高兴的是,河河中国控股令人印象深刻的息税前利润增长率意味着它在债务方面占据了上风。但说实话,我们觉得它将息税前利润转换为自由现金流确实有点削弱了这种印象。综上所述,中国控股似乎能够轻松应对当前的债务水平。当然,虽然这种杠杆可以提高股本回报率,但它确实带来了更多风险,因此值得关注这一点。在分析债务水平时,资产负债表显然是一个起点。然而,并非所有投资风险都存在于资产负债表中--远非如此。例如,我们已经确定河滨中国控股有限公司的2个警告标志这一点你应该知道。
总而言之,有时候专注于甚至不需要债务的公司会更容易。读者可以访问净债务为零的成长型股票列表100%免费,现在。
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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。