Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Huobi Technology Holdings Limited (HKG:1611) makes use of debt. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Huobi Technology Holdings
What Is Huobi Technology Holdings's Debt?
The image below, which you can click on for greater detail, shows that at March 2022 Huobi Technology Holdings had debt of HK$475.8m, up from HK$321.2m in one year. However, because it has a cash reserve of HK$375.1m, its net debt is less, at about HK$100.7m.
SEHK:1611 Debt to Equity History July 7th 2022
A Look At Huobi Technology Holdings' Liabilities
The latest balance sheet data shows that Huobi Technology Holdings had liabilities of HK$575.1m due within a year, and liabilities of HK$515.3m falling due after that. Offsetting these obligations, it had cash of HK$375.1m as well as receivables valued at HK$78.5m due within 12 months. So it has liabilities totalling HK$636.8m more than its cash and near-term receivables, combined.
Huobi Technology Holdings has a market capitalization of HK$2.00b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). 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).
Huobi Technology Holdings's net debt is sitting at a very reasonable 2.0 times its EBITDA, while its EBIT covered its interest expense just 3.1 times last year. While that doesn't worry us too much, it does suggest the interest payments are somewhat of a burden. Shareholders should be aware that Huobi Technology Holdings's EBIT was down 48% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But it is Huobi Technology Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Looking at the most recent two years, Huobi Technology Holdings recorded free cash flow of 21% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.
Our View
We'd go so far as to say Huobi Technology Holdings's EBIT growth rate was disappointing. Having said that, its ability handle its debt, based on its EBITDA, isn't such a worry. Looking at the bigger picture, it seems clear to us that Huobi Technology Holdings's use of debt is creating risks for the company. If everything goes well that may pay off but the downside of this debt is a greater risk of permanent losses. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for Huobi Technology Holdings you should be aware of.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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.
巴菲特(Warren Buffett)曾説過一句名言:波動性遠非風險的代名詞。因此,當你考慮到任何一隻股票的風險有多大時,你需要考慮債務可能是顯而易見的,因為太多的債務可能會讓一家公司倒閉。與許多其他公司一樣火壁科技控股有限公司(HKG:1611)利用債務。但真正的問題是,這筆債務是否讓該公司面臨風險。
為什麼債務會帶來風險?
一般來説,只有當一家公司無法輕鬆償還債務時,債務才會成為一個真正的問題,無論是通過籌集資金還是用自己的現金流。最終,如果公司不能履行其償還債務的法定義務,股東可能會一無所有地離開。儘管這並不常見,但我們確實經常看到負債累累的公司永久性地稀釋股東的權益,因為貸款人迫使他們以令人沮喪的價格籌集資金。話雖如此,最常見的情況是一家公司對債務管理得相當好--並對自己有利。當考慮一家企業使用了多少債務時,首先要做的是把現金和債務放在一起看。
查看我們對火壁科技控股的最新分析
火比科技控股的債務是什麼?
下圖顯示,截至2022年3月,火比科技控股有限公司的債務為4.758億港元,高於一年內的3.212億港元。你可以點擊查看更多細節。然而,由於該公司擁有3.751億港元的現金儲備,其淨債務較少,約為1.07億港元。
聯交所:1611債轉股歷史2022年7月7日
霍壁科技控股公司的負債狀況
最新的資產負債表數據顯示,火比科技控股有5.751億港元的負債在一年內到期,5.153億港元的負債在一年內到期。作為這些債務的抵消,該公司有3.751億港元的現金以及7850萬港元的應收賬款在12個月內到期。因此,該公司的負債總額為6.368億港元,超過其現金和近期應收賬款的總和。
火比科技控股的市值為2.0億港元,因此如果有需要,它很可能會籌集現金來改善其資產負債表。但很明顯,我們絕對應該仔細檢查它是否能夠在不稀釋的情況下管理債務。
為了評估一家公司的債務相對於它的收益,我們計算它的淨債務除以它的利息、税項、折舊和攤銷前收益(EBITDA)和它的利息和税前收益(EBIT)除以它的利息支出(它的利息覆蓋)。這種方法的優點是,我們既考慮了債務的絕對數量(淨債務與EBITDA之比),也考慮了與債務相關的實際利息支出(及其利息覆蓋率)。
火比科技控股的淨債務相當於其息税前利潤的2.0倍,相當合理,而去年其息税前利潤僅為利息支出的3.1倍。雖然這並不讓我們太擔心,但它確實表明利息支付在某種程度上是一種負擔。股東們應該知道,火壁科技控股去年的息税前利潤下降了48%。如果這種盈利趨勢持續下去,那麼償還債務就像把貓趕上過山車一樣容易。在分析債務水平時,資產負債表顯然是一個起點。但未來影響資產負債表表現的將是火比科技控股的盈利情況。因此,當考慮債務時,絕對值得關注收益趨勢。點擊此處查看互動快照。
但我們的最後考慮也很重要,因為一家公司不能用賬面利潤來償還債務;它需要冷硬現金。因此,有必要檢查這筆息税前利潤中有多少是由自由現金流支持的。看看最近兩年,火壁科技控股錄得相當於息税前利潤21%的自由現金流,這比我們預期的要弱。當涉及到償還債務時,這並不是很好。
我們的觀點
我們甚至可以説,火壁科技控股的息税前利潤增長率令人失望。話雖如此,根據其EBITDA,它處理債務的能力並不是那麼令人擔憂。從更大的角度來看,我們似乎很清楚,火比科技控股公司的債務使用正在給公司帶來風險。如果一切順利,這可能會得到回報,但這筆債務的不利之處是永久性損失的風險更大。毫無疑問,我們從資產負債表中瞭解到的債務最多。然而,並非所有投資風險都存在於資產負債表中--遠非如此。一個恰當的例子:我們發現了火壁科技控股的4個警告信號你應該意識到。
如果你對一家增長迅速、資產負債表堅如磐石的公司更感興趣,那麼請立即查看我們的淨現金成長型股票清單。
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本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。