Does AMCO United Holding (HKG:630) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies AMCO United Holding Limited (HKG:630) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for AMCO United Holding

What Is AMCO United Holding's Net Debt?

You can click the graphic below for the historical numbers, but it shows that AMCO United Holding had HK$30.0m of debt in June 2023, down from HK$51.7m, one year before. But it also has HK$34.7m in cash to offset that, meaning it has HK$4.73m net cash.

How Strong Is AMCO United Holding's Balance Sheet?

According to the last reported balance sheet, AMCO United Holding had liabilities of HK$95.6m due within 12 months, and liabilities of HK$30.1m due beyond 12 months. Offsetting these obligations, it had cash of HK$34.7m as well as receivables valued at HK$120.9m due within 12 months. So it can boast HK$29.9m more liquid assets than total liabilities.

This surplus liquidity suggests that AMCO United Holding's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, AMCO United Holding boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is AMCO United Holding'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.

In the last year AMCO United Holding's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

So How Risky Is AMCO United Holding?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that AMCO United Holding had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through HK$20m of cash and made a loss of HK$104m. But the saving grace is the HK$4.73m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 4 warning signs we've spotted with AMCO United Holding (including 3 which are potentially serious) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.