Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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, Shenzhen Sunshine Laser & Electronics Technology Co., Ltd. (SZSE:300227) does carry debt. But the more important question is: how much risk is that debt creating?
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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for Shenzhen Sunshine Laser & Electronics Technology
What Is Shenzhen Sunshine Laser & Electronics Technology's Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2022 Shenzhen Sunshine Laser & Electronics Technology had CN¥386.8m of debt, an increase on CN¥306.9m, over one year. However, it does have CN¥175.2m in cash offsetting this, leading to net debt of about CN¥211.6m.
SZSE:300227 Debt to Equity History August 1st 2022
How Healthy Is Shenzhen Sunshine Laser & Electronics Technology's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Shenzhen Sunshine Laser & Electronics Technology had liabilities of CN¥656.0m due within 12 months and liabilities of CN¥212.9m due beyond that. Offsetting this, it had CN¥175.2m in cash and CN¥511.9m in receivables that were due within 12 months. So it has liabilities totalling CN¥181.8m more than its cash and near-term receivables, combined.
Given Shenzhen Sunshine Laser & Electronics Technology has a market capitalization of CN¥4.00b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.
We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Looking at its net debt to EBITDA of 1.0 and interest cover of 6.1 times, it seems to us that Shenzhen Sunshine Laser & Electronics Technology is probably using debt in a pretty reasonable way. So we'd recommend keeping a close eye on the impact financing costs are having on the business. The modesty of its debt load may become crucial for Shenzhen Sunshine Laser & Electronics Technology if management cannot prevent a repeat of the 37% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Shenzhen Sunshine Laser & Electronics Technology 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. Over the last three years, Shenzhen Sunshine Laser & Electronics Technology 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
To be frank both Shenzhen Sunshine Laser & Electronics Technology's conversion of EBIT to free cash flow and its track record of (not) growing its EBIT make us rather uncomfortable with its debt levels. But on the bright side, its net debt to EBITDA is a good sign, and makes us more optimistic. Once we consider all the factors above, together, it seems to us that Shenzhen Sunshine Laser & Electronics Technology's debt is making it a bit risky. Some people like that sort of risk, but we're mindful of the potential pitfalls, so we'd probably prefer it carry less debt. 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. To that end, you should be aware of the 2 warning signs we've spotted with Shenzhen Sunshine Laser & Electronics Technology .
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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.
傳奇基金經理理想汽車·盧曾説,最大的投資風險不是價格的波動,而是你是否會遭受永久性的資本損失。當我們考慮一家公司的風險有多大時,我們總是喜歡看它對債務的使用,因為債務過重可能導致破產。重要的是深圳市陽光激光電子科技有限公司。(SZSE:300227)確實有債務。但更重要的問題是:這筆債務造成了多大的風險?
什麼時候債務是個問題?
當一家企業無法輕鬆履行這些義務時,債務和其他債務就會變得有風險,無論是通過自由現金流還是通過以有吸引力的價格籌集資本。在最糟糕的情況下,如果一家公司無法償還債權人的債務,它可能會破產。然而,更常見(但代價仍然高昂)的情況是,一家公司必須以極低的價格發行股票,永久性地稀釋股東的股份,只是為了支撐其資產負債表。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。當我們檢查債務水平時,我們首先同時考慮現金和債務水平。
查看我們對深圳陽光激光電子科技的最新分析
深圳陽光激光電子科技的債務是什麼?
你可以點擊下圖查看歷史數據,但它顯示,截至2022年3月,深圳陽光激光電子科技有3.868億元人民幣的債務,比一年前增加了3.069億元人民幣。然而,它確實有1.752億加元的現金抵消了這一點,導致淨債務約為2.116億加元。
深交所:300227債轉股歷史2022年8月1日
深圳陽光激光電子科技的資產負債表有多健康?
放大最新的資產負債表數據,我們可以看到深圳陽光激光電子科技有6.560億加元的負債在12個月內到期,還有2.129億加元的負債在12個月內到期。作為抵消,它有1.752億加元的現金和5.119億加元的應收賬款在12個月內到期。因此,它的負債總額比現金和近期應收賬款加起來還要多1.818億元。
鑑於深圳陽光激光電子科技的市值為4億元人民幣,很難相信這些債務會構成太大的威脅。話雖如此,很明顯,我們應該繼續監控它的資產負債表,以免它變得更糟。
我們通過查看公司的淨債務除以利息、税項、折舊和攤銷前收益(EBITDA),並計算其息税前收益(EBIT)覆蓋利息支出(利息覆蓋)的容易程度,來衡量公司的債務負擔與其盈利能力的關係。因此,我們考慮債務相對於收益,包括折舊和攤銷費用。
考慮到其淨債務與EBITDA之比為1.0,利息覆蓋率為6.1倍,在我們看來,深圳陽光激光電子科技可能正在以相當合理的方式利用債務。因此,我們建議密切關注融資成本對業務的影響。如果管理層不能防止過去一年息税前利潤削減37%的情況重演,其適度的債務負擔可能對深圳陽光激光電子科技至關重要。説到還債,收入下降並不比含糖汽水對你的健康有什麼用處。當你分析債務時,資產負債表顯然是你關注的領域。但你不能完全孤立地看待債務,因為深圳陽光激光電子科技需要盈利來償還債務。因此,如果你熱衷於瞭解更多關於它的收益,可能值得查看一下它的長期收益趨勢圖。
最後,企業需要自由現金流來償還債務;會計利潤只是不能削減這一點。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。在過去的三年裏,深圳陽光激光電子科技的自由現金流總額為大幅負值。儘管這可能是增長支出的結果,但它確實使債務的風險大得多。
我們的觀點
坦率地説,深圳陽光激光電子科技將息税前利潤轉換為自由現金流,以及其息税前利潤(EBIT)(不)增長的記錄,都讓我們對其債務水平感到相當不安。但從好的方面來看,它的淨債務與EBITDA之比是一個好跡象,讓我們更加樂觀。綜合考慮上述因素,我們認為深圳陽光激光電子科技的債務似乎使其面臨一定的風險。有些人喜歡這種風險,但我們注意到了潛在的陷阱,所以我們可能更喜歡它揹負更少的債務。當你分析債務時,資產負債表顯然是你關注的領域。但歸根結底,每家公司都可能包含存在於資產負債表之外的風險。為此,您應該意識到2個警告標誌我們發現了深圳陽光激光電子科技有限公司。
如果你有興趣投資於可以在沒有債務負擔的情況下增長利潤的企業,那麼看看這個免費資產負債表上有淨現金的成長型企業名單。
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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。