Auditors Are Concerned About Madison Holdings Group (HKG:8057)

Unfortunately for shareholders, when Madison Holdings Group Limited (HKG:8057) reported results for the period to March 2023, its auditors, Prism CPA Limited, expressed uncertainty about whether it can continue as a going concern. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So shareholders should absolutely be taking a close look at how risky the balance sheet is. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.

Check out our latest analysis for Madison Holdings Group

What Is Madison Holdings Group's Debt?

As you can see below, Madison Holdings Group had HK$231.4m of debt at March 2023, down from HK$370.9m a year prior. However, it also had HK$96.6m in cash, and so its net debt is HK$134.8m.

How Healthy Is Madison Holdings Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Madison Holdings Group had liabilities of HK$276.7m due within 12 months and liabilities of HK$5.97m due beyond that. Offsetting this, it had HK$96.6m in cash and HK$267.5m in receivables that were due within 12 months. So it actually has HK$81.4m more liquid assets than total liabilities.

This surplus strongly suggests that Madison Holdings Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. When analysing debt levels, the balance sheet is the obvious place to start. But it is Madison Holdings Group'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.

Over 12 months, Madison Holdings Group made a loss at the EBIT level, and saw its revenue drop to HK$97m, which is a fall of 26%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Madison Holdings Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at HK$4.4m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd be more likely to spend time trying to understand the stock if the company made a profit. This one is a bit too risky for our liking. We prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. 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. To that end, you should learn about the 2 warning signs we've spotted with Madison Holdings Group (including 1 which can't be ignored) .

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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