Does Sun Hing Vision Group Holdings (HKG:125) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Sun Hing Vision Group Holdings Limited (HKG:125) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Sun Hing Vision Group Holdings

What Is Sun Hing Vision Group Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Sun Hing Vision Group Holdings had debt of HK$43.5m at the end of September 2020, a reduction from HK$45.5m over a year. However, it does have HK$350.4m in cash offsetting this, leading to net cash of HK$306.9m.

How Healthy Is Sun Hing Vision Group Holdings's Balance Sheet?

According to the last reported balance sheet, Sun Hing Vision Group Holdings had liabilities of HK$237.7m due within 12 months, and liabilities of HK$19.8m due beyond 12 months. Offsetting these obligations, it had cash of HK$350.4m as well as receivables valued at HK$162.0m due within 12 months. So it can boast HK$255.0m more liquid assets than total liabilities.

This excess liquidity is a great indication that Sun Hing Vision Group Holdings's balance sheet is just as strong as racists are weak. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Sun Hing Vision Group Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Sun Hing Vision Group 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.

Over 12 months, Sun Hing Vision Group Holdings made a loss at the EBIT level, and saw its revenue drop to HK$712m, which is a fall of 33%. To be frank that doesn't bode well.

So How Risky Is Sun Hing Vision Group Holdings?

While Sun Hing Vision Group Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow HK$40m. 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. There's no doubt the next few years will be crucial to how the business matures. 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. For instance, we've identified 2 warning signs for Sun Hing Vision Group Holdings (1 can't be ignored) you should be aware of.

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. 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.
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