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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, QPL International Holdings Limited (HKG:243) does carry debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for QPL International Holdings
What Is QPL International Holdings's Net Debt?
As you can see below, QPL International Holdings had HK$48.6m of debt, at October 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have HK$159.2m in cash offsetting this, leading to net cash of HK$110.6m.
How Strong Is QPL International Holdings' Balance Sheet?
The latest balance sheet data shows that QPL International Holdings had liabilities of HK$142.9m due within a year, and liabilities of HK$1.62m falling due after that. On the other hand, it had cash of HK$159.2m and HK$108.5m worth of receivables due within a year. So it can boast HK$123.1m more liquid assets than total liabilities.
This surplus strongly suggests that QPL International Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, QPL International Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is QPL International Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Over 12 months, QPL International Holdings reported revenue of HK$285m, which is a gain of 2.0%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is QPL International Holdings?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year QPL International Holdings had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through HK$11m of cash and made a loss of HK$30m. While this does make the company a bit risky, it's important to remember it has net cash of HK$110.6m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 - QPL International Holdings has 2 warning signs we think you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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.