Ever Harvest Group Holdings (HKG:1549) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Ever Harvest Group Holdings Limited (HKG:1549) does carry debt. But the more important question is: how much risk is that debt creating?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Ever Harvest Group Holdings

How Much Debt Does Ever Harvest Group Holdings Carry?

As you can see below, Ever Harvest Group Holdings had HK$48.9m of debt at December 2023, down from HK$64.6m a year prior. However, its balance sheet shows it holds HK$119.1m in cash, so it actually has HK$70.2m net cash.

How Healthy Is Ever Harvest Group Holdings' Balance Sheet?

According to the last reported balance sheet, Ever Harvest Group Holdings had liabilities of HK$138.6m due within 12 months, and liabilities of HK$1.04m due beyond 12 months. Offsetting these obligations, it had cash of HK$119.1m as well as receivables valued at HK$69.4m due within 12 months. So it can boast HK$48.9m more liquid assets than total liabilities.

This surplus liquidity suggests that Ever Harvest Group Holdings' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Ever Harvest Group 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 Ever Harvest Group 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.

Over 12 months, Ever Harvest Group Holdings made a loss at the EBIT level, and saw its revenue drop to HK$392m, which is a fall of 40%. That makes us nervous, to say the least.

So How Risky Is Ever Harvest Group Holdings?

Although Ever Harvest Group Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of HK$513k. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. For example - Ever Harvest Group Holdings has 4 warning signs we think you should be aware of.

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.

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