Is the balance sheet of Fineland Living Services Group (HKG:9978) healthy?

Legendary fund manager Li Lu (backed by Charlie Munger) once said: So smart rich people seem to know that debt (usually associated with bankruptcy) is a very important factor in assessing a company’s risk. Importantly, Fineland Living Service Group Limited (HKG:9978) is in debt. But the bigger question is how much risk does that liability create?

What are the risks of borrowing?

Debt is a tool that helps companies grow, but if companies can’t pay back their lenders, they exist at their mercy. Part of capitalism is the process of ‘creative destruction’ in which failed businesses are ruthlessly liquidated by bankers. Although less common, we often see debt companies permanently diluting their shareholders. Of course, debt can be an important tool in business, especially in capital-heavy ones. When looking at debt levels, first consider both cash and debt levels together.

See the latest analysis from Fineland Living Services Group

What is the net debt of Fineland Living Services Group?

The image below, which can be clicked for more details, shows that in June 2022, Fineland Living Services Group had a debt of CN 40 million. However, offsetting this he has CN 114.2 million in cash, and net cash he has CN 74.2 million.

Fineland Living Services Group Debt Summary

Expanding on the latest balance sheet data, we can see that the Fineland Living Services Group has a debt due within 12 months of CN 297.1 million and a more outstanding debt of CN 23.3 million. I understand. Offsetting these obligations were CN¥114.2m in cash and his 12-month receivables valued at CN¥338.7m.So you actually have CN¥132.5m more Current assets over total liabilities.

This attractive liquidity means that Fineland Living Services Group’s balance sheet is as solid as a giant sequoia tree. In that respect, I think the balance sheet is as strong as a cow. Simply put, the fact that Fineland Living Services Group has more cash than it has debt almost certainly indicates that it can safely manage its debt.

The bad news, however, is that EBIT for the Fineland Living Services Group has plunged 14% in the last 12 months. If profit margins continue to fall, the company could be in trouble. Clearly, the balance sheet is the starting point when analyzing debt levels. However, debt cannot be viewed in complete isolation. Fineland Living Services Group needs the proceeds to pay its debts. So if you want to learn more about earnings, it might be worth checking out this graph of long-term earnings trends.

But a final consideration is also important. Because a company cannot pay its debts with paper profits. I need cash. Fineland Living Services Group may have net cash on its balance sheet, but it is still interesting to see how this business converts earnings before interest (EBIT) into free cash flow. . Ability to manage debt. Over the last three years, the Fineland Living Services Group has spent a lot of cash. Investors undoubtedly expect that situation to be reversed in due course, but that clearly means that the use of debt is more risky.

summary

We sympathize with investors worried about debt, but at the end of the day, the Fineland Living Services Group has a net cash of CN74.2 million and plenty of liquid assets. Therefore, there is no problem with using the debt of the Fineland Living Services Group. The balance sheet is clearly an area to focus on when analyzing liabilities. Ultimately, however, all companies may have the risk of existing off balance sheets. for example, 4 Warning Signs from Fineland Living Services Group (2 makes us uncomfortable) Please understand.

After all, if you’re interested in a fast-growing company with a solid balance sheet, check out our list of net cash growth stocks right away.

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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …