BII Railway Transportation Technology Holdings (HKG: 1522) appears to use debt sparingly
Warren Buffett said: “Volatility is far from synonymous with risk”. When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Like many other companies BII Railway Transportation Technology Holdings Company Limited (HKG: 1522) uses debt. But does this debt worry shareholders?
What risk does debt entail?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own 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) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, debt can be an important tool in businesses, especially capital intensive businesses. When we think of a business’s use of debt, we first look at cash flow and debt together.
Check out our latest review for BII Railway Transportation Technology Holdings
What is the debt of BII Railway Transportation Technology Holdings?
As you can see below, BII Railway Transportation Technology Holdings had a debt of HK $ 571.4 million, as of December 2020, which is roughly the same as the year before. You can click on the graph for more details. But he also has HK $ 1.20 billion in cash to make up for that, which means he has HK $ 632.2 million in net cash.
How strong is the balance sheet of BII Railway Transportation Technology Holdings?
Latest balance sheet data shows BII Railway Transportation Technology Holdings had HK $ 1.65 billion in liabilities due within one year, and HK $ 89.6 million in liabilities due thereafter. . In return, he had HK $ 1.20 billion in cash and HK $ 1.16 billion in receivables due within 12 months. He can therefore boast of HK $ 617.9 million more in liquid assets than total Liabilities.
This abundant liquidity means that BII Railway Transportation Technology Holdings’ balance sheet is as strong as a giant sequoia. With this in mind, one could postulate that its track record means that the company is able to cope with some adversity. In short, BII Railway Transportation Technology Holdings has a net cash flow, so it’s fair to say that it doesn’t have a lot of debt!
Even more impressive is the fact that BII Railway Transportation Technology Holdings increased its EBIT by 153% year over year. If sustained, this growth will make debt even more manageable in the years to come. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is the profits of BII Railway Transportation Technology Holdings that will influence the balance sheet in the future. So if you want to know more about its profits, it might be worth checking out this long term profit trend chart.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. BII Railway Transportation Technology Holdings may have net cash on the balance sheet, but it is always interesting to examine the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need for, and its ability to manage debt. Over the past three years, BII Railway Transportation Technology Holdings has actually generated more free cash flow than EBIT. This kind of strong cash generation warms our hearts like a puppy in a bumblebee costume.
While we sympathize with investors who find the debt of concern, you should keep in mind that BII Railway Transportation Technology Holdings has net cash of HK $ 632.2 million, as well as more liquid assets than passive. And he impressed us with free cash flow of HK $ 277 million, or 109% of his EBIT. Ultimately, we are not concerned about the debt of BII Railway Transportation Technology Holdings. The balance sheet is clearly the area you need to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, we discovered 3 warning signs for BII Railway Transportation Technology Holdings which you should know before investing here.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
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