Does Kingland Property (GTSM:6264) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Kingland Property Corporation Ltd. (GTSM:6264) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Kingland Property

What Is Kingland Property's Debt?

The image below, which you can click on for greater detail, shows that at September 2020 Kingland Property had debt of NT$1.42b, up from NT$1.37b in one year. On the flip side, it has NT$84.1m in cash leading to net debt of about NT$1.34b.

How Healthy Is Kingland Property's Balance Sheet?

We can see from the most recent balance sheet that Kingland Property had liabilities of NT$550.5m falling due within a year, and liabilities of NT$1.02b due beyond that. Offsetting these obligations, it had cash of NT$84.1m as well as receivables valued at NT$123.1m due within 12 months. So it has liabilities totalling NT$1.37b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the NT$788.9m 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 definitely think shareholders need to watch this one closely. At the end of the day, Kingland Property would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Kingland Property will need earnings to service that debt. 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 Kingland Property wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to NT$329m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Kingland Property's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost NT$6.2m at the EBIT level. 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 NT$94m over the last twelve months. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Kingland Property (1 doesn't sit too well with us!) that you should be aware of before investing here.

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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