Is FIH Mobile (HKG:2038) Weighed On By Its Debt Load?

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. Importantly, FIH Mobile Limited (HKG:2038) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for FIH Mobile

What Is FIH Mobile's Debt?

The image below, which you can click on for greater detail, shows that at June 2022 FIH Mobile had debt of US$1.04b, up from US$974.1m in one year. But it also has US$1.73b in cash to offset that, meaning it has US$684.9m net cash.

How Healthy Is FIH Mobile's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FIH Mobile had liabilities of US$3.47b due within 12 months and liabilities of US$31.0m due beyond that. On the other hand, it had cash of US$1.73b and US$1.83b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This short term liquidity is a sign that FIH Mobile could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, FIH Mobile boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if FIH Mobile can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year FIH Mobile had a loss before interest and tax, and actually shrunk its revenue by 4.7%, to US$8.8b. That's not what we would hope to see.

So How Risky Is FIH Mobile?

Although FIH Mobile had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$61m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for FIH Mobile 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.