Does the SRE group (HKG: 1207) weigh on its debt?

David Iben put it well when he said, “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ It is only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. We can see that SRE Group Limited (HKG: 1207) uses debt in its business. But the real question is whether this debt makes the business risky.

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. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.

See our latest analysis for the SRE Group

What is the debt of the SRE group?

The graph below, which you can click for more details, shows that the SRE Group had a debt of 4.61 billion yuan in June 2021; about the same as the year before. On the other hand, he has CND 235.3 million in cash, resulting in net debt of around CNN 4.37 billion.

SEHK: 1207 History of debt to equity December 10, 2021

Is the balance sheet of the SRE group healthy?

The latest balance sheet data shows that the SRE Group had debts of CN 5.22 billion due within one year, and debts of CN 4.58 billion due thereafter. In compensation for these obligations, he had cash of CNS 235.3 million as well as receivables valued at CN 3.57 billion due within 12 months. Thus, its liabilities exceed the sum of its cash and (short-term) receivables by 5.99 billion yen.

The lack here weighs heavily on the CN 588.8million business itself, as if a child struggles under the weight of a huge backpack full of books, his gym equipment and a trumpet. . We therefore believe that shareholders should monitor it closely. Ultimately, the SRE Group would likely need a significant recapitalization if its creditors demanded repayment. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in isolation; given that the SRE Group will need income to service this debt. So if you want to know more about its profits, it may be worth checking out this long term profit trend chart.

Over 12 months, SRE Group reported CNS 328 million in revenue, a 12% gain, although it reported no profit before interest and taxes. We usually like to see unprofitable businesses growing faster, but each in their own way.

Emptor Warning

During the last twelve months, the SRE Group has recorded a loss of profit before interest and taxes (EBIT). Its EBIT loss was a huge CN ¥ 182m. Thinking about this and the large total liabilities, it’s hard to know what to say about the stock due to our intense de-refinement for it. Like every wide shot, we’re sure it has a brilliant presentation outlining its blue sky potential. But the reality is that it is low on liquid assets compared to liabilities, and it burned through CN ¥ 145m last year. So is this a high risk action? We think so, and we would avoid it. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. For example, we have identified 4 warning signs for the SRE Group (2 make us uncomfortable), you should be aware of this.

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow-growing stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

Source link

Comments are closed.