Does Wise Ally International Holdings (HKG: 9918) have a healthy balance sheet?

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. Above all, Wise Ally International Holdings Limited (HKG: 9918) carries a debt. But the real question is whether this debt makes the business risky.

Why Does Debt Bring Risk?

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. 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. Of course, many companies use debt to finance their growth without negative consequences. The first step in examining a company’s debt levels is to consider its cash flow and debt together.

Check out our latest review for Wise Ally International Holdings

What is the debt of Wise Ally International Holdings?

As you can see below, Wise Ally International Holdings was in debt of HK $ 247.1 million in June 2021, up from HK $ 269.4 million the year before. However, he also had HK $ 213.0 million in cash, so his net debt is HK $ 34.1 million.

SEHK: 9918 History of debt to equity September 27, 2021

How healthy is Wise Ally International Holdings’ balance sheet?

We can see from the most recent balance sheet that Wise Ally International Holdings had a liability of HK $ 684.8 million maturing within one year, and a liability of HK $ 24.2 million due to- of the. In return, he had HK $ 213.0 million in cash and HK $ 183.0 million in receivables due within 12 months. It therefore has liabilities totaling HK $ 313.0 million more than its cash and short-term receivables combined.

This deficit casts a shadow over the HK $ 190.0 million company like a towering colossus of mere mortals. We therefore believe that shareholders should watch it closely. Ultimately, Wise Ally International Holdings would likely need a major recapitalization if its creditors demanded repayment.

We use two main ratios to inform us about the levels of debt compared to earnings. The first is net debt divided by earnings before interest, taxes, depreciation, and amortization (EBITDA), while the second is the number of times its profit before interest and taxes (EBIT) covers its interest expense (or its coverage of interest, for short). The advantage of this approach is that we take into account both the absolute amount of debt (with net debt versus EBITDA) and the actual interest charges associated with this debt (with its coverage rate). interests).

While Wise Ally International Holdings’ low debt-to-EBITDA ratio of 0.50 suggests only a modest use of debt, the fact that EBIT only covered interest expense 5.3 times last year makes us think. But the interest payments are certainly enough to make us think about how affordable his debt is. Notably, Wise Ally International Holdings’ EBIT was higher than Elon Musk’s, gaining a whopping 1.114% from last year. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in isolation; since Wise Ally International Holdings will need income 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.

Finally, a business can only pay off its debts with hard cash, not with book profits. It is therefore worth checking to what extent this EBIT is supported by free cash flow. Over the past three years, Wise Ally International Holdings has actually generated more free cash flow than EBIT. There is nothing better than cash flow to stay in the good graces of your lenders.

Our point of view

Based on what we’ve seen, Wise Ally International Holdings doesn’t find it easy, given its total liability level, but the other factors we’ve taken into account give us cause for optimism. There is no doubt that its ability to convert EBIT into free cash flow is quite fast. Looking at all of this data, we feel a little cautious about the debt levels of Wise Ally International Holdings. While debt has its advantage in terms of potential higher returns, we think shareholders should definitely consider how leverage levels might make the stock riskier. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Concrete example: we have spotted 6 warning signs for Wise Ally International Holdings you have to be aware of this, and one of them cannot be ignored.

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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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 shares 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 the mentioned stocks.
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