Is Oriental Payment Group Holdings (HKG:8613) using too much debt?
Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it may be obvious that you need to consider debt when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies Oriental Payments Group Holdings Limited (HKG:8613) uses debt. But the more important question is: what risk does this debt create?
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. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still expensive) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business has is to look at its cash flow and debt together.
Check out our latest analysis for Oriental Payment Group Holdings
How much debt does Oriental Payment Group Holdings have?
The image below, which you can click on for more details, shows that in March 2022, Oriental Payment Group Holdings had HK$45.9 million in debt, down from HK$29.1 million in one year. year. However, since he has a cash reserve of HK$35.6 million, his net debt is lower at around HK$10.3 million.
How healthy is Oriental Payment Group Holdings’ balance sheet?
Latest balance sheet data shows Oriental Payment Group Holdings had liabilities of HK$52.1 million due within the year, and liabilities of HK$6.32 million falling due thereafter. . On the other hand, it had cash of HK$35.6 million and HK$14.4 million of receivables due within one year. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables of HK$8.46 million.
Given that Oriental Payment Group Holdings has a market capitalization of HK$153.6 million, it’s hard to believe that these liabilities pose a threat. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future. The balance sheet is clearly the area to focus on when analyzing debt. But it is the profits of Oriental Payment Group Holdings that will influence the balance sheet in the future. So, if you want to know more about its earnings, it might be worth checking out this graph of its long-term trend.
Year-over-year, Oriental Payment Group Holdings recorded a loss in EBIT and saw its revenue drop to HK$4.9 million, a decline of 48%. To be honest, that doesn’t bode well.
Not only has Oriental Payment Group Holdings’ revenue dropped over the past twelve months, it has also produced negative earnings before interest and taxes (EBIT). Indeed, it lost a very considerable HK$35 million in EBIT. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. Quite frankly, we think the track record falls short, although it could improve over time. Another reason for caution is that it has lost HK$26 million in negative free cash flow over the past twelve months. So in short it’s a really risky title. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Be aware that Oriental Payment Group Holdings displays 6 warning signs in our investment analysis and 2 of them should not be ignored…
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.
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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.