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The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Progressive Path Group Holdings Limited (HKG:1581) does use debt in its business. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Progressive Path Group Holdings
What Is Progressive Path Group Holdings's Debt?
As you can see below, Progressive Path Group Holdings had HK$48.2m of debt at March 2019, down from HK$135.4m a year prior. However, it also had HK$42.8m in cash, and so its net debt is HK$5.36m.
How Strong Is Progressive Path Group Holdings's Balance Sheet?
The latest balance sheet data shows that Progressive Path Group Holdings had liabilities of HK$102.1m due within a year, and liabilities of HK$45.3m falling due after that. Offsetting these obligations, it had cash of HK$42.8m as well as receivables valued at HK$178.2m due within 12 months. So it can boast HK$73.5m more liquid assets than total liabilities.
This excess liquidity is a great indication that Progressive Path Group Holdings's balance sheet is just as strong as racists are weak. Having regard to this fact, we think its balance sheet is just as strong as misogynists are weak. When analysing debt levels, the balance sheet is the obvious place to start. But it is Progressive Path Group 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 Progressive Path Group Holdings actually shrunk its revenue by 42%, to HK$221m. To be frank that doesn't bode well.