David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Tingyi (Cayman Islands) Holding Corp. (HKG:322) makes use of debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
How Much Debt Does Tingyi (Cayman Islands) Holding Carry?
The chart below, which you can click on for greater detail, shows that Tingyi (Cayman Islands) Holding had CN15.3b in debt in June 2021; about the same as the year before. However, it does have CN23.2b in cash offsetting this, leading to net cash of CN7.84b.
How Strong Is Tingyi (Cayman Islands) Holding's Balance Sheet?
According to the last reported balance sheet,...
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