We Think Lai Si Enterprise Holding (HKG:2266) Can Stay On Top Of Its Debt

Howard Marks put it nicely when he said 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. As with many other companies Lai Si Enterprise Holding Limited (HKG:2266) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Lai Si Enterprise Holding's Debt?

As you can see below, Lai Si Enterprise Holding had MO$39.0m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of MO$25.0m, its net debt is less, at about MO$14.0m.

A Look At Lai Si Enterprise Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that Lai Si Enterprise Holding had liabilities of MO$100.2m due within 12 months and liabilities of MO$3.04m due beyond that. On the other hand, it had cash of MO$25.0m and MO$89.6m worth of receivables due within a year. So it can boast MO$11.4m more liquid assets than total liabilities.

This surplus suggests that Lai Si Enterprise Holding has a conservative balance sheet, and could probably eliminate its debt without much difficulty.

View our latest analysis for Lai Si Enterprise Holding

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Lai Si Enterprise Holding's net debt is only 0.62 times its EBITDA. And its EBIT easily covers its interest expense, being 73.9 times the size. So we're pretty relaxed about its super-conservative use of debt. Although Lai Si Enterprise Holding made a loss at the EBIT level, last year, it was also good to see that it generated MO$22m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Lai Si Enterprise Holding 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. In the last year, Lai Si Enterprise Holding's free cash flow amounted to 42% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Our View

Happily, Lai Si Enterprise Holding's impressive interest cover implies it has the upper hand on its debt. And that's just the beginning of the good news since its net debt to EBITDA is also very heartening. Taking all this data into account, it seems to us that Lai Si Enterprise Holding takes a pretty sensible approach to debt. While that brings some risk, it can also enhance returns for shareholders. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Lai Si Enterprise Holding that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.