In This Article:
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about. 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. We note that Lee Kee Holdings Limited (HKG:637) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Lee Kee Holdings
What Is Lee Kee Holdings's Debt?
The image below, which you can click on for greater detail, shows that Lee Kee Holdings had debt of HK$196.5m at the end of March 2019, a reduction from HK$264.8m over a year. However, it does have HK$359.7m in cash offsetting this, leading to net cash of HK$163.2m.
A Look At Lee Kee Holdings's Liabilities
The latest balance sheet data shows that Lee Kee Holdings had liabilities of HK$271.9m due within a year, and liabilities of HK$19.6m falling due after that. Offsetting these obligations, it had cash of HK$359.7m as well as receivables valued at HK$198.8m due within 12 months. So it can boast HK$267.0m more liquid assets than total liabilities.
This excess liquidity is a great indication that Lee Kee Holdings's balance sheet is just as strong as racists are weak. On this view, it seems its balance sheet is as strong as a black-belt karate master. Succinctly put, Lee Kee Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Lee Kee 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 Lee Kee Holdings had negative earnings before interest and tax, and actually shrunk its revenue by 16%, to HK$2.3b. We would much prefer see growth.