Wanganui

Main Menu

  • Creative Destruction
  • Tax Haven
  • Terminal Value
  • First Theorem Of Welfare Economics
  • Debt

Wanganui

Header Banner

Wanganui

  • Creative Destruction
  • Tax Haven
  • Terminal Value
  • First Theorem Of Welfare Economics
  • Debt
Creative Destruction
Home›Creative Destruction›Here’s why Zhaobangji Properties Holdings (HKG:1660) can manage its debt responsibly

Here’s why Zhaobangji Properties Holdings (HKG:1660) can manage its debt responsibly

By Judy Grier
February 16, 2022
0
0

Warren Buffett said: “Volatility is far from synonymous with risk. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We note that Zhaobangji Properties Holdings Limited (HKG:1660) has a debt on its balance sheet. But the real question is whether this debt makes the business risky.

When is debt a problem?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

Check out our latest analysis for Zhaobangji Properties Holdings

How much debt does Zhaobangji Properties Holdings have?

You can click on the graph below for historical numbers, but it shows that Zhaobangji Properties Holdings had HK$14.0 million in debt in September 2021, up from HK$19.9 million a year earlier. However, his balance sheet shows that he holds HK$217.3 million in cash, so he actually has HK$203.3 million in cash.

SEHK: 1660 Historical Debt to Equity February 16, 2022

How healthy is Zhaobangji Properties Holdings’ balance sheet?

Zooming in on the latest balance sheet data, we can see that Zhaobangji Properties Holdings had liabilities of HK$87.6 million due within 12 months and liabilities of HK$33.4 million due beyond. In return, he had HK$217.3 million in cash and HK$80.4 million in debt due within 12 months. It can therefore boast that it has HK$176.7 million more in cash than total Passives.

This short-term liquidity is a sign that Zhaobangji Properties Holdings could probably service its debt easily, as its balance sheet is far from stretched. Put simply, the fact that Zhaobangji Properties Holdings has more cash than debt is arguably a good indication that it can safely manage its debt.

On the other hand, Zhaobangji Properties Holdings’ EBIT fell 11% over the past year. We believe that this type of performance, if repeated frequently, could well spell trouble for the stock. When analyzing debt levels, the balance sheet is the obvious starting point. But you can’t look at debt in total isolation; since Zhaobangji Properties Holdings will need revenue to repay this debt. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.

Finally, a business needs free cash flow to pay off its debts; book profits are not enough. Zhaobangji Properties Holdings may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its ability to manage debt. Over the past three years, Zhaobangji Properties Holdings’ free cash flow has been 25% of its EBIT, less than expected. It’s not great when it comes to paying off debt.

Abstract

While we sympathize with investors who find debt a concern, you should keep in mind that Zhaobangji Properties Holdings has net cash of HK$203.3 million, as well as more liquid assets than liabilities. . We are therefore not concerned about the use of Zhaobangji Properties Holdings’ debt. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for Zhaobangji Properties Holdings (1 of which is a little worrying!) that you should know about.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Related posts:

  1. A maternity and clever loan
  2. Non – bank loans immediately on account
  3. 6 most important information about your loan to watch
  4. This is Why High Union Electronics (GTSM: 6266) Can Responsibly Handle Debt
Tagsanalysis basedbuy selldata noteeditorial teamfinancial situationfundamental datageneral naturelong termnote analysisprice sensitiverecommendation buysimply wallst articleteam simplywallstwall st

Recent Posts

  • XPeng Stock: Anchored in Valuation, Not Speculation (NYSE: XPEV)
  • Balenciaga’s trashed sneakers divide opinion and tap into fashion history
  • US States Struggle to Replace Tax Revenue from Fossil Fuels | News, Sports, Jobs
  • MarketInk: Newsradio KOGO Wins Regional Edward R. Murrow Award
  • Scarlet Witch Fills Out The Original MCU Hulk Arc

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • July 2019
  • June 2019
  • April 2019
  • February 2019
  • January 2019
  • September 2018
  • December 2017
  • October 2017
  • March 2017
  • February 2017
  • December 2016
  • August 2016
  • May 2016
  • April 2016
  • October 2015
  • May 2015
  • April 2015
  • November 2014
  • September 2013
  • August 2010

Categories

  • Creative Destruction
  • Debt
  • First Theorem Of Welfare Economics
  • Tax Haven
  • Terminal Value
  • Terms and Conditions
  • Privacy Policy