Is Oriental Payment Group Holdings (HKG:8613) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Oriental Payment Group Holdings Limited (HKG:8613) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Oriental Payment Group Holdings

What Is Oriental Payment Group Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Oriental Payment Group Holdings had debt of HK$18.6m, up from HK$17.5m in one year. However, its balance sheet shows it holds HK$27.4m in cash, so it actually has HK$8.83m net cash.

How Healthy Is Oriental Payment Group Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Oriental Payment Group Holdings had liabilities of HK$46.9m due within 12 months and liabilities of HK$7.19m due beyond that. On the other hand, it had cash of HK$27.4m and HK$26.9m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Oriental Payment Group Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the HK$144.0m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Oriental Payment Group Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Oriental Payment Group Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Oriental Payment Group Holdings made a loss at the EBIT level, and saw its revenue drop to HK$6.9m, which is a fall of 85%. To be frank that doesn't bode well.

So How Risky Is Oriental Payment Group Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Oriental Payment Group Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through HK$7.8m of cash and made a loss of HK$37m. Given it only has net cash of HK$8.83m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 example, we've discovered 4 warning signs for Oriental Payment Group Holdings (2 shouldn't be ignored!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.