Stock Analysis

Is Viva Goods (HKG:8032) A Risky Investment?

SEHK:933
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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. Importantly, Viva Goods Company Limited (HKG:8032) does carry debt. But the more important question is: how much risk is that debt creating?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Viva Goods

What Is Viva Goods's Net Debt?

As you can see below, Viva Goods had HK$344.1m of debt at December 2022, down from HK$486.3m a year prior. However, its balance sheet shows it holds HK$2.98b in cash, so it actually has HK$2.63b net cash.

debt-equity-history-analysis
SEHK:8032 Debt to Equity History May 16th 2023

How Healthy Is Viva Goods' Balance Sheet?

The latest balance sheet data shows that Viva Goods had liabilities of HK$4.43b due within a year, and liabilities of HK$2.05b falling due after that. Offsetting these obligations, it had cash of HK$2.98b as well as receivables valued at HK$862.3m due within 12 months. So its liabilities total HK$2.63b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Viva Goods has a market capitalization of HK$12.5b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Viva Goods boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Viva Goods's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Viva Goods wasn't profitable at an EBIT level, but managed to grow its revenue by 578%, to HK$9.5b. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Viva Goods?

Although Viva Goods had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of HK$889m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. One positive is that Viva Goods is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. 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. For instance, we've identified 3 warning signs for Viva Goods 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.