Is Vietnam Manufacturing and Export Processing (Holdings) (HKG:422) Using Debt In A Risky Way?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Vietnam Manufacturing and Export Processing (Holdings) Limited (HKG:422) does carry debt. But the real question is whether this debt is making the company risky.

Our free stock report includes 1 warning sign investors should be aware of before investing in Vietnam Manufacturing and Export Processing (Holdings). Read for free now.

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Vietnam Manufacturing and Export Processing (Holdings) Carry?

You can click the graphic below for the historical numbers, but it shows that Vietnam Manufacturing and Export Processing (Holdings) had US$33.8m of debt in December 2024, down from US$42.8m, one year before. But on the other hand it also has US$54.4m in cash, leading to a US$20.6m net cash position.

How Healthy Is Vietnam Manufacturing and Export Processing (Holdings)'s Balance Sheet?

According to the last reported balance sheet, Vietnam Manufacturing and Export Processing (Holdings) had liabilities of US$56.3m due within 12 months, and liabilities of US$2.08m due beyond 12 months. On the other hand, it had cash of US$54.4m and US$14.3m worth of receivables due within a year. So it actually has US$10.3m more liquid assets than total liabilities.

It's good to see that Vietnam Manufacturing and Export Processing (Holdings) has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Vietnam Manufacturing and Export Processing (Holdings) boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Vietnam Manufacturing and Export Processing (Holdings) 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.

Check out our latest analysis for Vietnam Manufacturing and Export Processing (Holdings)

Over 12 months, Vietnam Manufacturing and Export Processing (Holdings) made a loss at the EBIT level, and saw its revenue drop to US$81m, which is a fall of 23%. That makes us nervous, to say the least.

So How Risky Is Vietnam Manufacturing and Export Processing (Holdings)?

Although Vietnam Manufacturing and Export Processing (Holdings) had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$9.0m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Vietnam Manufacturing and Export Processing (Holdings) , and understanding them should be part of your investment process.

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.

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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.