Stock Analysis

Does Milestone Builder Holdings (HKG:1667) Have A Healthy Balance Sheet?

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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Milestone Builder Holdings Limited (HKG:1667) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Milestone Builder Holdings

How Much Debt Does Milestone Builder Holdings Carry?

As you can see below, Milestone Builder Holdings had HK$204.6m of debt at September 2022, down from HK$215.6m a year prior. On the flip side, it has HK$9.98m in cash leading to net debt of about HK$194.7m.

SEHK:1667 Debt to Equity History March 15th 2023

How Healthy Is Milestone Builder Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Milestone Builder Holdings had liabilities of HK$88.8m due within 12 months and liabilities of HK$205.8m due beyond that. Offsetting these obligations, it had cash of HK$9.98m as well as receivables valued at HK$233.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$51.2m.

Since publicly traded Milestone Builder Holdings shares are worth a total of HK$336.0m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Milestone Builder Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year Milestone Builder Holdings's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Milestone Builder Holdings produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping HK$40m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through HK$24m of cash over the last year. So in short it's a really risky stock. 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 learn about the 4 warning signs we've spotted with Milestone Builder Holdings (including 2 which make us uncomfortable) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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