Is Linklogis (HKG:9959) 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.' 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 note that Linklogis Inc. (HKG:9959) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Linklogis

How Much Debt Does Linklogis Carry?

As you can see below, at the end of December 2023, Linklogis had CN¥34.0m of debt, up from CN¥10.0m a year ago. Click the image for more detail. But it also has CN¥6.14b in cash to offset that, meaning it has CN¥6.11b net cash.

How Healthy Is Linklogis' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Linklogis had liabilities of CN¥537.0m due within 12 months and liabilities of CN¥80.8m due beyond that. Offsetting this, it had CN¥6.14b in cash and CN¥302.0m in receivables that were due within 12 months. So it can boast CN¥5.83b more liquid assets than total liabilities.

This surplus strongly suggests that Linklogis has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Linklogis 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 it is future earnings, more than anything, that will determine Linklogis's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Linklogis made a loss at the EBIT level, and saw its revenue drop to CN¥868m, which is a fall of 6.1%. We would much prefer see growth.

So How Risky Is Linklogis?

Although Linklogis had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥1.2b. 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. The next few years will be important as the business matures. For riskier companies like Linklogis I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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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.