Is Moiselle International Holdings (HKG:130) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Moiselle International Holdings Limited (HKG:130) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Moiselle International Holdings

What Is Moiselle International Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Moiselle International Holdings had HK$53.5m of debt, an increase on HK$34.1m, over one year. However, because it has a cash reserve of HK$17.6m, its net debt is less, at about HK$36.0m.

How Healthy Is Moiselle International Holdings' Balance Sheet?

The latest balance sheet data shows that Moiselle International Holdings had liabilities of HK$146.6m due within a year, and liabilities of HK$127.6m falling due after that. Offsetting these obligations, it had cash of HK$17.6m as well as receivables valued at HK$32.7m due within 12 months. So it has liabilities totalling HK$223.9m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the HK$99.3m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Moiselle International Holdings would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Moiselle 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 Moiselle International Holdings had a loss before interest and tax, and actually shrunk its revenue by 34%, to HK$127m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Moiselle International Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping HK$29m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of HK$23m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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 Moiselle International Holdings you should be aware of, and 1 of them can't be ignored.

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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