Does EHang Holdings (NASDAQ: EH) have a healthy balance sheet?
Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Above all, EHang Holdings Limited (NASDAQ: EH) is in debt. But should shareholders be concerned about its use of debt?
When is debt a problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
What is the debt of EHang Holdings?
As you can see below, EHang Holdings had a debt of CN 30.0 million in June 2021, compared to CN 41.1 million the previous year. However, his balance sheet shows that he has CN 406.5 million in cash, so he actually has a net cash of CN 376.5 million.
NasdaqGM: EH History of debt to equity November 27, 2021
How strong is EHang Holdings’ balance sheet?
The latest balance sheet data shows that EHang Holdings had liabilities of CNN 124.3 million due within one year, and CNN 68.4 million liabilities due after that. In compensation for these obligations, he had cash of CN 406.5 million as well as receivables valued at CN 111.8 million due within 12 months. So he actually CN ¥ 325.6m Following liquid assets as total liabilities.
This short-term liquidity is a sign that EHang Holdings could likely repay its debt easily, as its balance sheet is far from tight. In short, EHang Holdings has net cash, so it’s fair to say it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine EHang Holdings’ ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free Analyst Profit Forecast report interesting.
In the past year, EHang Holdings was not profitable at EBIT level, but managed to increase its revenue by 12%, to CN ¥ 161m. We generally like to see unprofitable businesses growing faster, but each in their own way.
So how risky is EHang Holdings?
By their very nature, businesses that lose money are riskier than those with a long history of profitability. And over the past year, EHang Holdings has recorded a loss of earnings before interest and taxes (EBIT), frankly. Indeed, during this period he spent CN 141 million in cash and suffered a loss of CN 186 million. While this does make the company a bit risky, it is important to remember that it has a net cash position of CNN 376.5 million. This jackpot means the business can continue to spend on growth for at least two years, at current rates. Overall, its balance sheet doesn’t look too risky at the moment, but we are still cautious until we see positive free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. For example – EHang Holdings has 2 warning signs we think you should be aware.
At the end of the day, it’s often best to focus on businesses that don’t have net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.
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