Does TATA Health International Holdings (HKG:1255) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies TATA Health International Holdings Limited (HKG:1255) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for TATA Health International Holdings

What Is TATA Health International Holdings's Debt?

As you can see below, TATA Health International Holdings had HK$30.9m of debt at December 2022, down from HK$42.4m a year prior. However, its balance sheet shows it holds HK$33.6m in cash, so it actually has HK$2.73m net cash.

How Healthy Is TATA Health International Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TATA Health International Holdings had liabilities of HK$148.5m due within 12 months and liabilities of HK$8.64m due beyond that. Offsetting these obligations, it had cash of HK$33.6m as well as receivables valued at HK$24.7m due within 12 months. So it has liabilities totalling HK$98.8m more than its cash and near-term receivables, combined.

This deficit isn't so bad because TATA Health International Holdings is worth HK$174.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, TATA Health International Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since TATA Health International 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.

In the last year TATA Health International Holdings had a loss before interest and tax, and actually shrunk its revenue by 10%, to HK$145m. That's not what we would hope to see.

So How Risky Is TATA Health International Holdings?

Although TATA Health International Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of HK$9.6m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with TATA Health International Holdings , and understanding them should be part of your investment process.

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.