Is CSSC Offshore & Marine Engineering (Group) (HKG: 317) using too much debt?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Like many other companies CSSC Offshore & Marine Engineering (Group) Company Limited (HKG: 317) uses debt. But does this debt worry shareholders?
What risk does debt entail?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
See our latest analysis for CSSC Offshore & Marine Engineering (Group)
What is the net debt of CSSC Offshore & Marine Engineering (Group)?
You can click on the graph below for historical figures, but it shows that CSSC Offshore & Marine Engineering (Group) had a debt of CN 6.10 billion in March 2021, up from CN 7.61 billion a year earlier. . But he also has CN Â¥ 9.06b in cash to compensate for this, which means he has CN Â¥ 2.96b in net cash.
How healthy is CSSC Offshore & Marine Engineering (Group) ‘s balance sheet?
The latest balance sheet data shows that CSSC Offshore & Marine Engineering (Group) had CN 17.5 billion in liabilities due within one year, and CN 3.03 billion in liabilities due within one year. the following. In compensation for these obligations, he had cash of NC 9.06 billion as well as receivables valued at CN 5.85 billion due within 12 months. Thus, its liabilities exceed the sum of its cash and its (short-term) receivables by 5.61b CN.
CSSC Offshore & Marine Engineering (Group) has a market cap of CN Â¥ 20.4b, so it could most likely raise funds to improve its balance sheet, should the need arise. But it is clear that it is absolutely necessary to take a close look at whether it can manage its debt without dilution. While it has some liabilities to note, CSSC Offshore & Marine Engineering (Group) also has more cash than debt, so we’re pretty confident it can handle its debt safely. The balance sheet is clearly the area you need to focus on when analyzing debt. But you can’t look at debt in isolation; since CSSC Offshore & Marine Engineering (Group) will need revenue to repay this debt. So if you want to know more about its profits, it may be worth checking out this chart of its long term profit trend.
In the past year, CSSC Offshore & Marine Engineering (Group) recorded a loss before interest and taxes and in fact reduced its revenue by 48%, to CN Â¥ 11b. To be frank, that doesn’t bode well.
So how risky is CSSC Offshore & Marine Engineering (Group)?
While CSSC Offshore & Marine Engineering (Group) lost money in earnings before interest and taxes (EBIT), it actually recorded a paper profit of CN 419 million. So when you consider that it has net cash, as well as statutory profit, the stock is probably not as risky as it looks, at least in the short term. Until we see positive EBIT, we remain a little cautious about the stock, especially given the rather modest revenue growth. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. To do this, you need to know the 2 warning signs we spotted with CSSC Offshore & Marine Engineering (Group).
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
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