Logory Logistics Technology (HKG:2482) Seems To Use Debt Rather Sparingly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Logory Logistics Technology Co., Ltd. (HKG:2482) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Logory Logistics Technology's Debt?

As you can see below, at the end of December 2024, Logory Logistics Technology had CN¥290.7m of debt, up from CN¥120.0m a year ago. Click the image for more detail. But on the other hand it also has CN¥836.4m in cash, leading to a CN¥545.7m net cash position.

A Look At Logory Logistics Technology's Liabilities

We can see from the most recent balance sheet that Logory Logistics Technology had liabilities of CN¥2.01b falling due within a year, and liabilities of CN¥15.0m due beyond that. On the other hand, it had cash of CN¥836.4m and CN¥1.72b worth of receivables due within a year. So it actually has CN¥532.1m more liquid assets than total liabilities.

This luscious liquidity implies that Logory Logistics Technology's 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, Logory Logistics Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Logory Logistics Technology

Although Logory Logistics Technology made a loss at the EBIT level, last year, it was also good to see that it generated CN¥61m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Logory Logistics Technology 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Logory Logistics Technology may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Logory Logistics Technology actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Logory Logistics Technology has net cash of CN¥545.7m, as well as more liquid assets than liabilities. The cherry on top was that in converted 249% of that EBIT to free cash flow, bringing in CN¥151m. So we don't think Logory Logistics Technology's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Logory Logistics Technology's earnings per share history for free.

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.