Is Sun Hing Vision Group Holdings (HKG:125) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Sun Hing Vision Group Holdings Limited (HKG:125) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Sun Hing Vision Group Holdings

How Much Debt Does Sun Hing Vision Group Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that Sun Hing Vision Group Holdings had HK$42.4m of debt in March 2021, down from HK$44.5m, one year before. However, it does have HK$321.4m in cash offsetting this, leading to net cash of HK$279.0m.

How Strong Is Sun Hing Vision Group Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sun Hing Vision Group Holdings had liabilities of HK$276.2m due within 12 months and liabilities of HK$20.7m due beyond that. On the other hand, it had cash of HK$321.4m and HK$237.8m worth of receivables due within a year. So it can boast HK$262.2m more liquid assets than total liabilities.

This surplus strongly suggests that Sun Hing Vision Group Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Sun Hing Vision Group Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. 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$702m, which is a fall of 23%. That makes us nervous, to say the least.

So How Risky Is Sun Hing Vision Group Holdings?

Although Sun Hing Vision Group Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of HK$9.6m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. The next few years will be important as the business matures. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Sun Hing Vision Group Holdings (1 shouldn't be ignored!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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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