OneForce Holdings (HKG:1933) Has Debt But No Earnings; Should You Worry?

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. We note that OneForce Holdings Limited (HKG:1933) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 OneForce Holdings

What Is OneForce Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2020 OneForce Holdings had debt of CN¥27.8m, up from CN¥26.2m in one year. But on the other hand it also has CN¥43.2m in cash, leading to a CN¥15.4m net cash position.

A Look At OneForce Holdings's Liabilities

Zooming in on the latest balance sheet data, we can see that OneForce Holdings had liabilities of CN¥95.4m due within 12 months and liabilities of CN¥910.0k due beyond that. On the other hand, it had cash of CN¥43.2m and CN¥180.7m worth of receivables due within a year. So it actually has CN¥127.5m more liquid assets than total liabilities.

This surplus liquidity suggests that OneForce Holdings's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this basis we think its balance sheet is strong like a sleek panther or even a proud lion. Succinctly put, OneForce 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 it is OneForce Holdings's earnings that will influence how the balance sheet holds up in the future. 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, OneForce Holdings reported revenue of CN¥179m, which is a gain of 3.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is OneForce Holdings?

While OneForce Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥16m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The next few years will be important as the business matures. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that OneForce Holdings is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

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. 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.
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