Does Yu Tak International Holdings (HKG:8048) 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.' 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 Yu Tak International Holdings Limited (HKG:8048) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Yu Tak International Holdings

What Is Yu Tak International Holdings's Debt?

As you can see below, at the end of June 2024, Yu Tak International Holdings had HK$13.2m of debt, up from HK$7.82m a year ago. Click the image for more detail. However, it does have HK$20.1m in cash offsetting this, leading to net cash of HK$6.90m.

How Healthy Is Yu Tak International Holdings' Balance Sheet?

According to the last reported balance sheet, Yu Tak International Holdings had liabilities of HK$34.4m due within 12 months, and liabilities of HK$988.0k due beyond 12 months. Offsetting this, it had HK$20.1m in cash and HK$22.7m in receivables that were due within 12 months. So it actually has HK$7.50m more liquid assets than total liabilities.

This surplus suggests that Yu Tak International Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Yu Tak International Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Yu Tak International 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.

In the last year Yu Tak International Holdings had a loss before interest and tax, and actually shrunk its revenue by 29%, to HK$20m. To be frank that doesn't bode well.

So How Risky Is Yu Tak International Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Yu Tak International Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through HK$2.6m of cash and made a loss of HK$13m. While this does make the company a bit risky, it's important to remember it has net cash of HK$6.90m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Yu Tak International Holdings (1 is a bit concerning) you should be aware of.

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.