AGTech Holdings (HKG:8279) Has Debt But No Earnings; Should You Worry?

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 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. We can see that AGTech Holdings Limited (HKG:8279) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for AGTech Holdings

What Is AGTech Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 AGTech Holdings had HK$45.5m of debt, an increase on none, over one year. But it also has HK$1.58b in cash to offset that, meaning it has HK$1.54b net cash.

How Healthy Is AGTech Holdings' Balance Sheet?

According to the last reported balance sheet, AGTech Holdings had liabilities of HK$116.6m due within 12 months, and liabilities of HK$57.9m due beyond 12 months. Offsetting these obligations, it had cash of HK$1.58b as well as receivables valued at HK$163.9m due within 12 months. So it can boast HK$1.57b more liquid assets than total liabilities.

This luscious liquidity implies that AGTech Holdings' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, AGTech 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 you can't view debt in total isolation; since AGTech 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.

Over 12 months, AGTech Holdings reported revenue of HK$200m, which is a gain of 23%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is AGTech Holdings?

While AGTech Holdings lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of HK$2.1m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 23% is a good sign. We'd see further strong growth as an optimistic indication. 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. For example - AGTech Holdings has 2 warning signs we think you should be aware of.

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. 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.