Is Bradaverse Education (Int'l) Investments Group (HKG:1082) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Bradaverse Education (Int'l) Investments Group Limited (HKG:1082) does carry debt. But the real question is whether this debt is making the company risky.

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Bradaverse Education (Int'l) Investments Group

What Is Bradaverse Education (Int'l) Investments Group's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Bradaverse Education (Int'l) Investments Group had HK$21.1m of debt, an increase on none, over one year. However, its balance sheet shows it holds HK$79.4m in cash, so it actually has HK$58.4m net cash.

How Strong Is Bradaverse Education (Int'l) Investments Group's Balance Sheet?

We can see from the most recent balance sheet that Bradaverse Education (Int'l) Investments Group had liabilities of HK$53.4m falling due within a year, and liabilities of HK$3.90m due beyond that. Offsetting these obligations, it had cash of HK$79.4m as well as receivables valued at HK$49.2m due within 12 months. So it actually has HK$71.4m more liquid assets than total liabilities.

This surplus suggests that Bradaverse Education (Int'l) Investments Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Bradaverse Education (Int'l) Investments Group has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Bradaverse Education (Int'l) Investments 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.

In the last year Bradaverse Education (Int'l) Investments Group wasn't profitable at an EBIT level, but managed to grow its revenue by 24%, to HK$119m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Bradaverse Education (Int'l) Investments Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Bradaverse Education (Int'l) Investments Group 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 HK$6.8m and booked a HK$29m accounting loss. However, it has net cash of HK$58.4m, so it has a bit of time before it will need more capital. Bradaverse Education (Int'l) Investments Group's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Bradaverse Education (Int'l) Investments Group's profit, revenue, and operating cashflow have changed over the last few years.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.