Crystal International Group (HKG:2232) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Crystal International Group Limited (HKG:2232) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

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What Is Crystal International Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Crystal International Group had US$117.5m of debt in June 2022, down from US$174.7m, one year before. But it also has US$413.7m in cash to offset that, meaning it has US$296.2m net cash.

A Look At Crystal International Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Crystal International Group had liabilities of US$611.5m due within 12 months and liabilities of US$58.7m due beyond that. On the other hand, it had cash of US$413.7m and US$327.7m worth of receivables due within a year. So it can boast US$71.3m more liquid assets than total liabilities.

This surplus suggests that Crystal International Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Crystal International Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Crystal International Group grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Crystal International Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Crystal International Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Crystal International Group actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Crystal International Group has net cash of US$296.2m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$154m, being 137% of its EBIT. So is Crystal International Group's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Crystal International Group that you should be aware of.

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. 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.