Health Check: How Prudently Does eprint Group (HKG:1884) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, eprint Group Limited (HKG:1884) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for eprint Group

How Much Debt Does eprint Group Carry?

The image below, which you can click on for greater detail, shows that at March 2024 eprint Group had debt of HK$41.0m, up from HK$22.7m in one year. But on the other hand it also has HK$113.0m in cash, leading to a HK$72.1m net cash position.

How Strong Is eprint Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that eprint Group had liabilities of HK$106.1m due within 12 months and liabilities of HK$28.5m due beyond that. On the other hand, it had cash of HK$113.0m and HK$7.03m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$14.5m.

eprint Group has a market capitalization of HK$54.5m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, eprint Group boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since eprint Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, eprint Group saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is eprint Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months eprint Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of HK$3.5m and booked a HK$8.3m accounting loss. But the saving grace is the HK$72.1m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Be aware that eprint Group is showing 3 warning signs in our investment analysis , and 2 of those are a bit concerning...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.