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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Global Link Communications Holdings Limited (HKG:8060) does carry debt. But is this debt a concern to shareholders?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Global Link Communications Holdings
What Is Global Link Communications Holdings's Debt?
The image below, which you can click on for greater detail, shows that at March 2019 Global Link Communications Holdings had debt of HK$1.16m, up from none in one year. But on the other hand it also has HK$80.8m in cash, leading to a HK$79.7m net cash position.
How Strong Is Global Link Communications Holdings's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Global Link Communications Holdings had liabilities of HK$56.6m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of HK$80.8m as well as receivables valued at HK$53.8m due within 12 months. So it actually has HK$78.0m more liquid assets than total liabilities.
This surplus liquidity suggests that Global Link Communications Holdings's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is just as strong as misogynists are weak. Simply put, the fact that Global Link Communications Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Global Link Communications 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.