Is Hin Sang Group (International) Holding (HKG:6893) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Hin Sang Group (International) Holding Co. Ltd. (HKG:6893) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Hin Sang Group (International) Holding

What Is Hin Sang Group (International) Holding's Net Debt?

The chart below, which you can click on for greater detail, shows that Hin Sang Group (International) Holding had HK$317.1m in debt in March 2023; about the same as the year before. However, because it has a cash reserve of HK$12.9m, its net debt is less, at about HK$304.1m.

How Strong Is Hin Sang Group (International) Holding's Balance Sheet?

We can see from the most recent balance sheet that Hin Sang Group (International) Holding had liabilities of HK$216.6m falling due within a year, and liabilities of HK$161.8m due beyond that. On the other hand, it had cash of HK$12.9m and HK$10.2m worth of receivables due within a year. So its liabilities total HK$355.2m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of HK$458.6m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Hin Sang Group (International) Holding will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Hin Sang Group (International) Holding made a loss at the EBIT level, and saw its revenue drop to HK$81m, which is a fall of 32%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Hin Sang Group (International) Holding'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$37m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through HK$3.8m of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Hin Sang Group (International) Holding has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

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.