Is Bar Pacific Group Holdings (HKG:8432) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Bar Pacific Group Holdings Limited (HKG:8432) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Bar Pacific Group Holdings

How Much Debt Does Bar Pacific Group Holdings Carry?

The image below, which you can click on for greater detail, shows that at March 2022 Bar Pacific Group Holdings had debt of HK$59.9m, up from HK$52.7m in one year. However, because it has a cash reserve of HK$2.08m, its net debt is less, at about HK$57.8m.

How Strong Is Bar Pacific Group Holdings' Balance Sheet?

We can see from the most recent balance sheet that Bar Pacific Group Holdings had liabilities of HK$111.3m falling due within a year, and liabilities of HK$67.8m due beyond that. Offsetting this, it had HK$2.08m in cash and HK$4.73m in receivables that were due within 12 months. So it has liabilities totalling HK$172.3m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the HK$94.6m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Bar Pacific Group Holdings would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Bar Pacific Group Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, Bar Pacific Group Holdings reported revenue of HK$98m, which is a gain of 64%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Bar Pacific Group Holdings's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping HK$23m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of HK$10m. And until that time we think this is a risky stock. 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 Bar Pacific Group Holdings you should be aware of, and 2 of them 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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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.