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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that eprint Group Limited (HKG:1884) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
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. 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 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 eprint Group
How Much Debt Does eprint Group Carry?
The image below, which you can click on for greater detail, shows that eprint Group had debt of HK$25.9m at the end of March 2019, a reduction from HK$31.6m over a year. But it also has HK$151.4m in cash to offset that, meaning it has HK$125.5m net cash.
How Healthy Is eprint Group's Balance Sheet?
We can see from the most recent balance sheet that eprint Group had liabilities of HK$67.9m falling due within a year, and liabilities of HK$8.23m due beyond that. Offsetting this, it had HK$151.4m in cash and HK$10.5m in receivables that were due within 12 months. So it can boast HK$85.8m more liquid assets than total liabilities.
This excess liquidity is a great indication that eprint Group'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. Simply put, the fact that eprint Group has more cash than debt is arguably a good indication that it can manage its debt safely.
The modesty of its debt load may become crucial for eprint Group if management cannot prevent a repeat of the 38% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since eprint Group will need earnings to service that debt. 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.