Boill Healthcare Holdings (HKG:1246) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Boill Healthcare Holdings Limited (HKG:1246) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Boill Healthcare Holdings

How Much Debt Does Boill Healthcare Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that Boill Healthcare Holdings had HK$1.17b of debt in March 2023, down from HK$1.57b, one year before. However, it also had HK$638.4m in cash, and so its net debt is HK$532.7m.

How Strong Is Boill Healthcare Holdings' Balance Sheet?

The latest balance sheet data shows that Boill Healthcare Holdings had liabilities of HK$1.60b due within a year, and liabilities of HK$807.7m falling due after that. Offsetting this, it had HK$638.4m in cash and HK$9.62m in receivables that were due within 12 months. So it has liabilities totalling HK$1.76b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the HK$93.7m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Boill Healthcare 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 you can't view debt in total isolation; since Boill Healthcare Holdings 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, Boill Healthcare Holdings made a loss at the EBIT level, and saw its revenue drop to HK$348m, which is a fall of 65%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Boill Healthcare Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable HK$135m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost HK$224m in the last year. So we think buying this stock 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. We've identified 3 warning signs with Boill Healthcare Holdings (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

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.