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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, BeijingWest Industries International Limited (HKG:2339) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for BeijingWest Industries International
How Much Debt Does BeijingWest Industries International Carry?
You can click the graphic below for the historical numbers, but it shows that BeijingWest Industries International had HK$349.8m of debt in December 2018, down from HK$567.1m, one year before. But on the other hand it also has HK$801.3m in cash, leading to a HK$451.4m net cash position.
How Strong Is BeijingWest Industries International's Balance Sheet?
The latest balance sheet data shows that BeijingWest Industries International had liabilities of HK$988.4m due within a year, and liabilities of HK$159.6m falling due after that. Offsetting this, it had HK$801.3m in cash and HK$488.2m in receivables that were due within 12 months. So it actually has HK$141.5m more liquid assets than total liabilities.
This surplus liquidity suggests that BeijingWest Industries International's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this basis we think its balance sheet is strong like a sleek panther or even a proud lion. Succinctly put, BeijingWest Industries International 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 BeijingWest Industries International'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.