Is Beijing Capital International Airport (HKG:694) A Risky Investment?

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.' 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 note that Beijing Capital International Airport Company Limited (HKG:694) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Beijing Capital International Airport

What Is Beijing Capital International Airport's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Beijing Capital International Airport had debt of CN¥11.0b, up from CN¥10.0b in one year. On the flip side, it has CN¥1.62b in cash leading to net debt of about CN¥9.40b.

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

According to the last reported balance sheet, Beijing Capital International Airport had liabilities of CN¥13.9b due within 12 months, and liabilities of CN¥4.20b due beyond 12 months. Offsetting these obligations, it had cash of CN¥1.62b as well as receivables valued at CN¥1.60b due within 12 months. So its liabilities total CN¥14.8b more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's CN¥11.0b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. 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 109%, to CN¥5.0b. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Even though Beijing Capital International Airport managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at CN¥995m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of CN¥304m over the last twelve months. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Beijing Capital International Airport that you should be aware of.

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.

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