Is Frontier Services Group (HKG:500) weighed down by its debt?


Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. 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. We can see that Frontier Services Group Limited (HKG:500) uses debt in his business. But the real question is whether this debt makes the business risky.

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. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first step when considering a company’s debt levels is to consider its cash and debt together.

Check out our latest analysis for Frontier Services Group

How much debt does Frontier Services Group have?

The image below, which you can click on for more details, shows that in June 2022 the Frontier Services group had a debt of HK$191.4 million, compared to HK$28.3 million in one year. year. But he also has HK$213.1 million in cash to offset that, meaning he has a net cash of HK$21.7 million.

SEHK: 500 Debt to Equity History November 1, 2022

A look at the liabilities of the Frontier Services group

According to the latest published balance sheet, Frontier Services Group had liabilities of HK$314.3 million due within 12 months and liabilities of HK$376.3 million due beyond 12 months. As compensation for these obligations, it had liquid assets of HK$213.1 million as well as receivables valued at HK$268.7 million and payable within 12 months. Thus, its liabilities total HK$208.7 million more than the combination of its cash and short-term receivables.

Frontier Services Group has a market capitalization of HK$703.4 million, so it could very likely raise funds to improve its balance sheet, should the need arise. However, it is always worth taking a close look at its ability to repay debt. While it has liabilities to note, Frontier Services Group also has more cash than debt, so we’re pretty confident it can manage its debt safely. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in total isolation; since Frontier Services Group will need revenue to repay this debt. So if you want to know more about his earnings, it might be worth checking out. this chart of its long-term earnings trend.

Last year, Frontier Services Group was not profitable in terms of EBIT, but managed to increase its turnover by 46%, to HK$950 million. With a little luck, the company will be able to progress towards profitability.

So how risky is Frontier Services Group?

Statistically speaking, businesses that lose money are riskier than those that make money. And the fact is that over the past twelve months, Frontier Services Group has been losing money in earnings before interest and taxes (EBIT). Indeed, during this period, it burned HK$20 million and incurred a loss of HK$159 million. However, he has a net cash position of HK$21.7 million, so he still has some time before he needs more capital. With very solid revenue growth over the past year, Frontier Services Group could be on the road to profitability. Nonprofits are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 1 warning sign for Frontier Services Group you should know.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

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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.


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