Health Check: How Prudently Does HPC Holdings (HKG:1742) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that HPC Holdings Limited (HKG:1742) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does HPC Holdings Carry?

As you can see below, HPC Holdings had S$13.7m of debt at April 2025, down from S$17.6m a year prior. However, it does have S$57.8m in cash offsetting this, leading to net cash of S$44.1m.

How Strong Is HPC Holdings' Balance Sheet?

The latest balance sheet data shows that HPC Holdings had liabilities of S$84.3m due within a year, and liabilities of S$15.7m falling due after that. On the other hand, it had cash of S$57.8m and S$79.6m worth of receivables due within a year. So it can boast S$37.4m more liquid assets than total liabilities.

This luscious liquidity implies that HPC Holdings' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that HPC Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since HPC Holdings will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for HPC Holdings

Over 12 months, HPC Holdings made a loss at the EBIT level, and saw its revenue drop to S$201m, which is a fall of 3.8%. We would much prefer see growth.

So How Risky Is HPC Holdings?

While HPC Holdings lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of S$22m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. The next few years will be important as the business matures. 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 example, we've discovered 1 warning sign for HPC Holdings that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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 using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused 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.