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.' 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. Importantly, Norinco International Cooperation Ltd. (SZSE:000065) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Norinco International Cooperation
What Is Norinco International Cooperation's Net Debt?
The image below, which you can click on for greater detail, shows that Norinco International Cooperation had debt of CN¥6.00b at the end of September 2022, a reduction from CN¥6.53b over a year. However, because it has a cash reserve of CN¥4.27b, its net debt is less, at about CN¥1.73b.
SZSE:000065 Debt to Equity History December 15th 2022
How Strong Is Norinco International Cooperation's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Norinco International Cooperation had liabilities of CN¥9.00b due within 12 months and liabilities of CN¥4.75b due beyond that. On the other hand, it had cash of CN¥4.27b and CN¥6.02b worth of receivables due within a year. So its liabilities total CN¥3.45b more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Norinco International Cooperation has a market capitalization of CN¥8.98b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.
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.
We'd say that Norinco International Cooperation's moderate net debt to EBITDA ratio ( being 2.0), indicates prudence when it comes to debt. And its commanding EBIT of 1k times its interest expense, implies the debt load is as light as a peacock feather. Importantly Norinco International Cooperation's EBIT was essentially flat over the last twelve months. We would prefer to see some earnings growth, because that always helps diminish debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Norinco International Cooperation's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, Norinco International Cooperation saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.
Our View
Norinco International Cooperation's conversion of EBIT to free cash flow and level of total liabilities definitely weigh on it, in our esteem. But the good news is it seems to be able to cover its interest expense with its EBIT with ease. When we consider all the factors discussed, it seems to us that Norinco International Cooperation is taking some risks with its use of debt. So while that leverage does boost returns on equity, we wouldn't really want to see it increase from here. 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. For instance, we've identified 2 warning signs for Norinco International Cooperation 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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David·伊本说得好,波动不是我们关心的风险,我们关心的是避免资本的永久性损失。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。重要的是诺林科国际合作有限公司(SZSE:000065)确实有债务。但更重要的问题是:这笔债务造成了多大的风险?
债务在什么时候是危险的?
债务是帮助企业发展的一种工具,但如果一家企业无法偿还贷款人的债务,那么它就只能听从贷款人的摆布。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。当然,债务的好处是,它往往代表着廉价资本,特别是当它用能够以高回报率进行再投资的能力取代公司的稀释时。当我们考虑一家公司的债务用途时,我们首先会把现金和债务放在一起看。
查看我们对Norinco国际合作的最新分析
中国兵器工业国际公司的净债务是多少?
下图显示,截至2022年9月底,中国兵器工业股份有限公司的债务为6亿元人民币,较一年内的65.3亿元人民币有所减少。然而,由于其现金储备为人民币42.7亿元,其净债务较少,约为人民币17.3亿元。
深交所:000065债转股历史2022年12月15日
Norinco国际合作公司的资产负债表有多强劲?
放大最新的资产负债表数据可以看到,Norinco国际合作公司有9亿元人民币的负债在12个月内到期,还有47.5亿元人民币的负债在12个月内到期。另一方面,一年内有现金42.7亿元和应收账款60.2亿元到期。因此,其负债总额为人民币34.5亿元,超过了现金和短期应收账款的总和。
虽然这看起来可能很多,但并不是那么糟糕,因为中国兵器工业股份有限公司的市值为人民币89.8亿元,因此如果需要的话,它可能会通过筹集资本来加强其资产负债表。但我们肯定希望密切关注其债务带来太大风险的迹象。
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。
我们会说,Norinco International Corporation的净债务与EBITDA的比率适中(为2.0),表明在债务方面是谨慎的。其高达利息支出1k倍的息税前利润,意味着债务负担轻如孔雀羽毛。重要的是,Norinco国际合作公司的息税前利润在过去12个月基本持平。我们更希望看到一些收益增长,因为这总是有助于减少债务。在分析债务水平时,资产负债表显然是一个起点。但最重要的是,未来的收益将决定Norinco国际合作公司未来保持健康资产负债表的能力。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。
但我们的最后考虑也很重要,因为一家公司不能用账面利润来偿还债务;它需要冷硬现金。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。在过去的三年中,Norinco国际合作公司的自由现金流总额为大幅负值。尽管这可能是增长支出的结果,但它确实使债务的风险大得多。
我们的观点
在我们看来,Norinco International Corporation将息税前利润转换为自由现金流和总负债水平肯定会给它带来压力。但好消息是,它似乎能够轻松地用息税前利润来弥补利息支出。当我们考虑所有讨论的因素时,在我们看来,Norinco国际合作公司在使用债务方面似乎正在承担一些风险。因此,尽管杠杆率确实提高了股本回报率,但我们并不真的希望看到它从现在开始增加。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。例如,我们已经确定Norinco国际合作的2个警示信号这一点你应该知道。
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。