Some people say that volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said, “Volatility is not synonymous with risk.” When we think about a company's risk, we always look at its use of debt. Because too much debt can lead to ruin. Points to keep in mind are: ATOUR LIFESTYLE HOLDINGS LIMITED. (NASDAQ:ATAT) has debt on its balance sheet. But should shareholders be worried about its use of debt?
When is debt a problem?
Generally, debt only becomes a real problem when a company cannot easily pay off the debt, either by raising capital or with its own cash flow. In the worst case scenario, a company may go bankrupt if it is unable to pay its creditors. Although this is less common, we often see debt-ridden companies permanently diluting shareholders as lenders force them to raise capital at distressed prices. Of course, debt can be an important tool in business, especially in capital-heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Atul Lifestyle Holdings.
What is Atul Lifestyle Holdings's net debt?
The graphic below, which you can click on for historical numbers, shows that Atour Lifestyle Holdings had CN72m of debt as of December 2023, down from CN174m one year ago. Masu. However, it did have CA$3.59b in cash offsetting this, resulting in net cash of CA$3.52b.
How healthy is Atul Lifestyle Holdings' balance sheet?
Zooming in on the latest balance sheet data, Atour Lifestyle Holdings had liabilities of CA$2.38b due within 12 months, and liabilities of CA$2.15b due beyond that. You can see. On the other hand, it had cash of CA$3.59 billion and receivables worth CA$278 million that were due within a year. So its liabilities total CA$656.3m more than its cash and short-term receivables, combined.
Atour Lifestyle Holdings' listed shares have a total value of CA$17.7b, so we think this level of debt is unlikely to pose much of a threat. However, we think it's worth keeping an eye on its balance sheet strength, as that can change over time. Atul Lifestyle Holdings does have some notable debt, but it has more cash than debt, so we're pretty confident it can manage its debt safely.
What's even more impressive is the fact that Atour Lifestyle Holdings grew its EBIT by 460% over the trailing twelve months. This boost will make future debt repayments easier. The balance sheet is clearly the area to focus on when analyzing debt. However, more than anything else, it will be future earnings that will determine whether Atul Lifestyle Holdings can maintain a healthy balance sheet going forward. So if you want to see what the experts think, you might find this free report on analyst profit forecasts to be interesting.
Finally, companies need free cash flow to pay down debt. Accounting profits alone are not enough. Atour Lifestyle Holdings may have net cash on its balance sheet, but it's still interesting to see how well this business converts its earnings before interest and tax (EBIT) into free cash flow . Ability to manage debt. Fortunately for shareholders, Atour Lifestyle Holdings actually generated more free cash flow than its EBIT over the last three years. There's nothing better than having cash coming in to stay in lenders' good graces.
summary
It's understandable that investors are concerned about Atour Lifestyle Holdings' debt, but they can take comfort in the fact that it has net cash of CA$3.52b. And we're impressed by his free cash flow of CA$1.9b, representing 198% of his EBIT. Therefore, we do not consider Atour Lifestyle Holdings' use of debt to be risky. The balance sheet is clearly the area to focus on when analyzing debt. Ultimately, however, any company can contain risks that exist outside the balance sheet.Case in point: we discovered 1 warning sign for Atour Lifestyle Holdings. you should know.
If you're more interested in fast-growing companies with rock-solid balance sheets, then check out our list of net cash growth stocks without delay.
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Check out our comprehensive analysis, including below, to see if Atul Lifestyle Holdings is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
