Asia-express Logistics Holdings (HKG:8620) Is Making Moderate Use Of Debt

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 Asia-express Logistics Holdings Limited (HKG:8620) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Asia-express Logistics Holdings

How Much Debt Does Asia-express Logistics Holdings Carry?

The image below, which you can click on for greater detail, shows that Asia-express Logistics Holdings had debt of HK$27.0m at the end of September 2020, a reduction from HK$29.0m over a year. On the flip side, it has HK$26.0m in cash leading to net debt of about HK$1.03m.

A Look At Asia-express Logistics Holdings's Liabilities

The latest balance sheet data shows that Asia-express Logistics Holdings had liabilities of HK$77.0m due within a year, and liabilities of HK$18.3m falling due after that. Offsetting these obligations, it had cash of HK$26.0m as well as receivables valued at HK$66.7m due within 12 months. So its liabilities total HK$2.63m more than the combination of its cash and short-term receivables.

Given Asia-express Logistics Holdings has a market capitalization of HK$81.1m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Asia-express Logistics Holdings has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But it is Asia-express Logistics 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.

In the last year Asia-express Logistics Holdings's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, Asia-express Logistics Holdings had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at HK$3.3m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through HK$17m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Take risks, for example - Asia-express Logistics Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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. 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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