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

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Beijing Capital International Airport Company Limited (HKG:694) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

See our latest analysis for Beijing Capital International Airport

How Much Debt Does Beijing Capital International Airport Carry?

As you can see below, at the end of September 2023, Beijing Capital International Airport had CN¥10.3b of debt, up from CN¥8.03b a year ago. Click the image for more detail. On the flip side, it has CN¥1.32b in cash leading to net debt of about CN¥8.96b.

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

The latest balance sheet data shows that Beijing Capital International Airport had liabilities of CN¥13.3b due within a year, and liabilities of CN¥4.23b falling due after that. Offsetting these obligations, it had cash of CN¥1.32b as well as receivables valued at CN¥1.45b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥14.7b.

The deficiency here weighs heavily on the CN¥9.30b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Beijing Capital International Airport would likely require a major re-capitalisation if it had to pay its creditors today. 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 wasn't profitable at an EBIT level, but managed to grow its revenue by 54%, to CN¥3.7b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Beijing Capital International Airport's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost a very considerable CN¥2.2b at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through CN¥1.2b in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Beijing Capital International Airport that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.