Is Asiaray Media Group (HKG:1993) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Asiaray Media Group Limited (HKG:1993) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Asiaray Media Group

What Is Asiaray Media Group's Debt?

As you can see below, at the end of December 2022, Asiaray Media Group had HK$323.8m of debt, up from HK$258.0m a year ago. Click the image for more detail. However, its balance sheet shows it holds HK$333.3m in cash, so it actually has HK$9.56m net cash.

A Look At Asiaray Media Group's Liabilities

We can see from the most recent balance sheet that Asiaray Media Group had liabilities of HK$1.53b falling due within a year, and liabilities of HK$1.35b due beyond that. Offsetting these obligations, it had cash of HK$333.3m as well as receivables valued at HK$723.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$1.82b.

The deficiency here weighs heavily on the HK$698.1m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Asiaray Media Group would likely require a major re-capitalisation if it had to pay its creditors today. Asiaray Media Group boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Asiaray Media Group will need earnings to service that debt. 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, Asiaray Media Group made a loss at the EBIT level, and saw its revenue drop to HK$1.7b, which is a fall of 13%. We would much prefer see growth.

So How Risky Is Asiaray Media Group?

While Asiaray Media Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow HK$750m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. 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 2 warning signs for Asiaray Media Group you should be aware of, and 1 of them is significant.

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.