Would Vision Values ​​Holdings (HKG:862) be better off with less debt?

David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Above all, Vision Values ​​Holdings Limited (HKG:862) is in debt. But the real question is whether this debt makes the business risky.

When is debt a problem?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we look at debt levels, we first consider cash and debt levels, together.

Check out our latest analysis for Vision Values ​​Holdings

How much debt does Vision Values ​​Holdings have?

As you can see below, Vision Values ​​Holdings had HK$90.3 million in debt as of June 2022, up from HK$97.1 million the previous year. However, he also had HK$22.9 million in cash, so his net debt is HK$67.4 million.

How healthy is Vision Values ​​Holdings’ balance sheet?

According to the latest published balance sheet, Vision Values ​​Holdings had liabilities of HK$145.6 million due within 12 months and liabilities of HK$3.17 million due beyond 12 months. On the other hand, it had cash of HK$22.9 million and HK$54.4 million of receivables due within one year. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables of HK$71.4 million.

Given that Vision Values ​​Holdings has a market capitalization of HK$443.4 million, it’s hard to believe that these liabilities pose a threat. That said, it is clear that we must continue to monitor its record, lest it deteriorate. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in total isolation; since Vision Values ​​Holdings will need income to repay this debt. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.

Last year, Vision Values ​​Holdings was not profitable on an EBIT level, but managed to increase its turnover by 131%, to HK$127 million. There is therefore no doubt that shareholders encourage growth

Caveat Emptor

Even though Vision Values ​​Holdings has managed to grow its top line quite ably, the hard truth is that it is losing money on the EBIT line. Indeed, it lost HK$28 million in EBIT. When we look at this and recall the liabilities on its balance sheet, versus cash, it seems unwise to us that the company has liabilities. Quite frankly, we think the track record falls short, although it could improve over time. We would feel better if he turned his HK$32 million year-over-year loss into a profit. We therefore believe that this title is quite risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. For example, we found 2 warning signs for Vision Values ​​Holdings (1 is a bit worrying!) which you should be aware of before investing here.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.