Is Miko International Holdings (HKG:1247) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Miko International Holdings Limited (HKG:1247) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Miko International Holdings

What Is Miko International Holdings's Net Debt?

As you can see below, Miko International Holdings had CN¥17.0m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have CN¥124.4m in cash offsetting this, leading to net cash of CN¥107.4m.

How Strong Is Miko International Holdings' Balance Sheet?

We can see from the most recent balance sheet that Miko International Holdings had liabilities of CN¥153.9m falling due within a year, and liabilities of CN¥1.30m due beyond that. Offsetting these obligations, it had cash of CN¥124.4m as well as receivables valued at CN¥62.3m due within 12 months. So it can boast CN¥31.6m more liquid assets than total liabilities.

This surplus suggests that Miko International Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Miko International Holdings 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 Miko International 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.

In the last year Miko International Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to CN¥195m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Miko International Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Miko International Holdings had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CN¥8.7m and booked a CN¥12m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CN¥107.4m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Miko International Holdings may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Case in point: We've spotted 3 warning signs for Miko International Holdings you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.