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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. We can see that Lai Si Enterprise Holding Limited (HKG:2266) does use debt in its business. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Lai Si Enterprise Holding
How Much Debt Does Lai Si Enterprise Holding Carry?
You can click the graphic below for the historical numbers, but it shows that Lai Si Enterprise Holding had MO$54.8m of debt in December 2019, down from MO$61.7m, one year before. However, its balance sheet shows it holds MO$57.9m in cash, so it actually has MO$3.13m net cash.
How Strong Is Lai Si Enterprise Holding's Balance Sheet?
The latest balance sheet data shows that Lai Si Enterprise Holding had liabilities of MO$103.5m due within a year, and liabilities of MO$14.9m falling due after that. On the other hand, it had cash of MO$57.9m and MO$144.7m worth of receivables due within a year. So it can boast MO$84.2m more liquid assets than total liabilities.
This excess liquidity is a great indication that Lai Si Enterprise Holding's balance sheet is just as strong as racists are weak. With this in mind one could posit that its balance sheet is as strong as beautiful a rare rhino. Simply put, the fact that Lai Si Enterprise Holding has more cash than debt is arguably a good indication that it can manage its debt safely.
It is well worth noting that Lai Si Enterprise Holding's EBIT shot up like bamboo after rain, gaining 66% in the last twelve months. That'll make it easier to manage its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Lai Si Enterprise Holding'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.