Does Greatime International Holdings (HKG:844) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Greatime International Holdings Limited (HKG:844) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. 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. 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.

What Is Greatime International Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Greatime International Holdings had debt of CN¥176.9m, up from CN¥162.0m in one year. However, its balance sheet shows it holds CN¥263.6m in cash, so it actually has CN¥86.8m net cash.

How Healthy Is Greatime International Holdings' Balance Sheet?

According to the last reported balance sheet, Greatime International Holdings had liabilities of CN¥346.3m due within 12 months, and liabilities of CN¥1.75m due beyond 12 months. On the other hand, it had cash of CN¥263.6m and CN¥69.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥15.3m.

Since publicly traded Greatime International Holdings shares are worth a total of CN¥203.3m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Greatime International Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Greatime 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.

Check out our latest analysis for Greatime International Holdings

In the last year Greatime International Holdings had a loss before interest and tax, and actually shrunk its revenue by 4.3%, to CN¥487m. We would much prefer see growth.

So How Risky Is Greatime International Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Greatime International Holdings had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥16m and booked a CN¥15m accounting loss. But the saving grace is the CN¥86.8m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive 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. Case in point: We've spotted 3 warning signs for Greatime International Holdings you should be aware of, and 2 of them shouldn't be ignored.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.