Does Agile Group Holdings (HKG:3383) 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.' 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. We can see that Agile Group Holdings Limited (HKG:3383) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Agile Group Holdings

How Much Debt Does Agile Group Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that Agile Group Holdings had CN¥54.6b of debt in December 2023, down from CN¥61.0b, one year before. However, because it has a cash reserve of CN¥11.4b, its net debt is less, at about CN¥43.2b.

How Healthy Is Agile Group Holdings' Balance Sheet?

According to the last reported balance sheet, Agile Group Holdings had liabilities of CN¥143.2b due within 12 months, and liabilities of CN¥36.3b due beyond 12 months. Offsetting this, it had CN¥11.4b in cash and CN¥48.9b in receivables that were due within 12 months. So its liabilities total CN¥119.2b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CN¥3.23b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Agile Group Holdings would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Agile Group Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Agile Group Holdings made a loss at the EBIT level, and saw its revenue drop to CN¥43b, which is a fall of 20%. We would much prefer see growth.

Caveat Emptor

Not only did Agile Group Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping CN¥5.3b. 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 CN¥14b in the last year. So we think buying this stock is risky. 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. For instance, we've identified 3 warning signs for Agile Group Holdings (2 can't be ignored) you should be aware of.

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.