Does China Healthwise Holdings (HKG:348) Have A Healthy 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. We can see that China Healthwise Holdings Limited (HKG:348) does use debt in its business. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. 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 China Healthwise Holdings

What Is China Healthwise Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2022 China Healthwise Holdings had debt of HK$102.3m, up from HK$84.3m in one year. However, it does have HK$73.0m in cash offsetting this, leading to net debt of about HK$29.3m.

A Look At China Healthwise Holdings' Liabilities

The latest balance sheet data shows that China Healthwise Holdings had liabilities of HK$74.8m due within a year, and liabilities of HK$74.3m falling due after that. Offsetting these obligations, it had cash of HK$73.0m as well as receivables valued at HK$146.9m due within 12 months. So it actually has HK$70.9m more liquid assets than total liabilities.

This luscious liquidity implies that China Healthwise Holdings' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since China Healthwise 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 China Healthwise Holdings had a loss before interest and tax, and actually shrunk its revenue by 16%, to HK$142m. That's not what we would hope to see.

Caveat Emptor

Not only did China Healthwise 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$38m. That said, we're impressed with the strong balance sheet liquidity. That will give the company some time and space to grow and develop its business as need be. The company is risky because it will grow into the future to get to profitability and free cash flow. 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 1 warning sign for China Healthwise Holdings 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.