Howard Marks put it nicely when he stated that, rather than worrying about share price volatility, ‘The possibility of permanent loss is the risk I worry about… and every practical investor I know worries about.’ So it seems the smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess how risky a company is. Importantly, YSB Inc. (HKG:9885) does carry debt. But the real question is whether this debt is building the company risky.
When Is Debt A Problem?
Debt is a tool to assist businesses grow, but if a business is incapable of paying off its lfinishers, then it exists at their mercy. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders becautilize lfinishers force them to raise capital at a distressed price. Having stated that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, toreceiveher.
What Is YSB’s Debt?
The image below, which you can click on for greater detail, displays that at June 2025 YSB had debt of CN¥98.0m, up from CN¥29.3m in one year. However, its balance sheet displays it holds CN¥1.99b in cash, so it actually has CN¥1.89b net cash.
How Healthy Is YSB’s Balance Sheet?
The latest balance sheet data displays that YSB had liabilities of CN¥4.21b due within a year, and liabilities of CN¥288.7m falling due after that. Offsetting these obligations, it had cash of CN¥1.99b as well as receivables valued at CN¥210.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥2.30b.
While this might seem like a lot, it is not so bad since YSB has a market capitalization of CN¥6.10b, and so it could probably strengthen its balance sheet by raising capital if it requireded to. But it’s clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, YSB also has more cash than debt, so we’re pretty confident it can manage its debt safely. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine YSB’s ability to maintain a healthy balance sheet going forward. So if you’re focutilized on the future you can check out this free report displaying analyst profit forecasts.
Check out our latest analysis for YSB
In the last year YSB wasn’t profitable at an EBIT level, but managed to grow its revenue by 6.3%, to CN¥19b. We usually like to see rapider growth from unprofitable companies, but each to their own.
So How Risky Is YSB?
Although YSB had an earnings before interest and tax (EBIT) loss over the last twelve months, it created a statutory profit of CN¥86m. So when you consider it has net cash, along with the statutory profit, the stock probably isn’t as risky as it might seem, at least in the short term. With revenue growth uninspiring, we’d really required to see some positive EBIT before mustering much enthusiasm for this business. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we’ve identified 1 warning sign for YSB that you should be aware of.
If you’re interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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