Is China e-Wallet Payment Group (HKG:802) Weighed On By Its Debt Load?

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. As with many other companies China e-Wallet Payment Group Limited (HKG:802) makes use of debt. 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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 China e-Wallet Payment Group

What Is China e-Wallet Payment Group's Net Debt?

The chart below, which you can click on for greater detail, shows that China e-Wallet Payment Group had HK$14.5m in debt in June 2023; about the same as the year before. However, it does have HK$314.5m in cash offsetting this, leading to net cash of HK$300.0m.

A Look At China e-Wallet Payment Group's Liabilities

The latest balance sheet data shows that China e-Wallet Payment Group had liabilities of HK$19.8m due within a year, and liabilities of HK$15.1m falling due after that. On the other hand, it had cash of HK$314.5m and HK$40.6m worth of receivables due within a year. So it actually has HK$320.2m more liquid assets than total liabilities.

This surplus strongly suggests that China e-Wallet Payment Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, China e-Wallet Payment Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since China e-Wallet Payment Group 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, China e-Wallet Payment Group saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is China e-Wallet Payment Group?

Although China e-Wallet Payment Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of HK$4.1m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. There's no doubt the next few years will be crucial to how the business matures. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for China e-Wallet Payment Group you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.