Does Beijing Capital International Airport (HKG:694) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Beijing Capital International Airport Company Limited (HKG:694) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Beijing Capital International Airport

What Is Beijing Capital International Airport's Debt?

The chart below, which you can click on for greater detail, shows that Beijing Capital International Airport had CN¥6.89b in debt in June 2022; about the same as the year before. On the flip side, it has CN¥965.8m in cash leading to net debt of about CN¥5.93b.

How Healthy Is Beijing Capital International Airport's Balance Sheet?

We can see from the most recent balance sheet that Beijing Capital International Airport had liabilities of CN¥10.5b falling due within a year, and liabilities of CN¥4.18b due beyond that. Offsetting this, it had CN¥965.8m in cash and CN¥776.6m in receivables that were due within 12 months. So it has liabilities totalling CN¥12.9b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of CN¥19.1b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Beijing Capital International Airport can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Beijing Capital International Airport had a loss before interest and tax, and actually shrunk its revenue by 19%, to CN¥2.7b. We would much prefer see growth.

Caveat Emptor

While Beijing Capital International Airport's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable CN¥3.3b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.6b in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like Beijing Capital International Airport 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 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.