We Think Asia-express Logistics Holdings (HKG:8620) Has A Fair Chunk 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.' 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. As with many other companies Asia-express Logistics Holdings Limited (HKG:8620) makes use of debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Asia-express Logistics Holdings

What Is Asia-express Logistics Holdings's Debt?

As you can see below, at the end of March 2021, Asia-express Logistics Holdings had HK$34.0m of debt, up from HK$30.0m a year ago. Click the image for more detail. However, it does have HK$23.7m in cash offsetting this, leading to net debt of about HK$10.3m.

How Strong Is Asia-express Logistics Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Asia-express Logistics Holdings had liabilities of HK$96.8m due within 12 months and liabilities of HK$22.9m due beyond that. On the other hand, it had cash of HK$23.7m and HK$71.4m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$24.7m.

Asia-express Logistics Holdings has a market capitalization of HK$81.6m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. 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 wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to HK$378m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Asia-express Logistics Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable HK$8.9m 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. However, it doesn't help that it burned through HK$21m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Asia-express Logistics Holdings (including 2 which are concerning) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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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