Is BeijingWest Industries International (HKG:2339) A Risky Investment?
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.
Over 12 months, BeijingWest Industries International saw its revenue drop to HK$3.4b, which is a fall of 12%. That's not what we would hope to see.
So How Risky Is BeijingWest Industries International?
While BeijingWest Industries International lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of HK$121m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. For riskier companies like BeijingWest Industries International I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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