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Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about. So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Hung Hing Printing Group Limited (HKG:450) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Hung Hing Printing Group
What Is Hung Hing Printing Group's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Hung Hing Printing Group had HK$236.7m of debt, an increase on HK$167.1m, over one year. But it also has HK$929.4m in cash to offset that, meaning it has HK$692.7m net cash.
How Healthy Is Hung Hing Printing Group's Balance Sheet?
We can see from the most recent balance sheet that Hung Hing Printing Group had liabilities of HK$611.8m falling due within a year, and liabilities of HK$146.0m due beyond that. Offsetting this, it had HK$929.4m in cash and HK$869.3m in receivables that were due within 12 months. So it can boast HK$1.04b more liquid assets than total liabilities.
This surplus strongly suggests that Hung Hing Printing Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is just as strong as misogynists are weak. Simply put, the fact that Hung Hing Printing Group has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Hung Hing Printing Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.