Is HB Global (KLSE:HBGLOB) using too much debt?
Warren Buffett said: “Volatility is far from synonymous with risk. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Above all, HB Global Limited (KLSE:HBGLOB) is in debt. But the real question is whether this debt makes the business risky.
Why is debt risky?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, many companies use debt to finance their growth, without any negative consequences. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
See our latest analysis for HB Global
What is HB Global’s debt?
The image below, which you can click on for more details, shows that HB Global had debt of 85.6 million yen at the end of September 2021, a reduction from 107.8 million yen over one year. However, since he has a cash reserve of 14.6 million Canadian yen, his net debt is less, at around 71.0 million Canadian yen.
How strong is HB Global’s balance sheet?
The latest balance sheet data shows that HB Global had liabilities of 156.7 million yen maturing within one year, and liabilities of 7.54 million yen maturing thereafter. On the other hand, it had a cash position of 14.6 million Canadian yen and 113.9 million national yen of receivables due within one year. Thus, its liabilities total 35.8 million Canadian yen more than the combination of its cash and short-term receivables.
Given that HB Global has a market capitalization of 197.6 million Canadian yen, it’s hard to believe that these liabilities pose a big threat. However, we think it’s worth keeping an eye on the strength of its balance sheet, as it can change over time. When analyzing debt levels, the balance sheet is the obvious starting point. But you can’t look at debt in total isolation; since HB Global will need income to repay this debt. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.
Year-over-year, HB Global reported revenue of 125 million Canadian yen, a 9.6% gain, although it reported no earnings before interest and taxes. This rate of growth is a bit slow for our liking, but it takes all types to make a world.
Over the last twelve months, HB Global has recorded a loss of earnings before interest and taxes (EBIT). Its EBIT loss was 50 million Canadian yen. When we look at this and recall the liabilities on its balance sheet, versus cash, it seems unwise to us that the company has liabilities. Quite frankly, we think the track record falls short, although it could improve over time. However, it doesn’t help that he’s burned through 18 million Canadian yen in cash over the past year. So suffice it to say that we consider the stock to be very risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. To do this, you need to find out about the 4 warning signs we spotted some with HB Global (including 2 that are significant) .
If you are interested in investing in companies that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
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.