Weimob (HKG:2013) Is Carrying A Fair Bit Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Weimob Inc. (HKG:2013) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Weimob

How Much Debt Does Weimob Carry?

As you can see below, Weimob had CN¥3.11b of debt at June 2023, down from CN¥3.89b a year prior. However, it does have CN¥2.68b in cash offsetting this, leading to net debt of about CN¥430.5m.

A Look At Weimob's Liabilities

Zooming in on the latest balance sheet data, we can see that Weimob had liabilities of CN¥4.64b due within 12 months and liabilities of CN¥381.1m due beyond that. On the other hand, it had cash of CN¥2.68b and CN¥534.4m worth of receivables due within a year. So it has liabilities totalling CN¥1.80b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Weimob is worth CN¥8.82b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Weimob's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Weimob wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to CN¥2.1b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Weimob had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CN¥1.1b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥1.2b of cash over the last year. So in short it's a really risky stock. 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. Be aware that Weimob is showing 1 warning sign in our investment analysis , you should know about...

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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