Is CIMC Enric Holdings (HKG:3899) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that CIMC Enric Holdings Limited (HKG:3899) does use debt in its business. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does CIMC Enric Holdings Carry?

The chart below, which you can click on for greater detail, shows that CIMC Enric Holdings had CN¥2.96b in debt in June 2025; about the same as the year before. However, its balance sheet shows it holds CN¥10.4b in cash, so it actually has CN¥7.41b net cash.

How Strong Is CIMC Enric Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CIMC Enric Holdings had liabilities of CN¥14.3b due within 12 months and liabilities of CN¥3.02b due beyond that. Offsetting this, it had CN¥10.4b in cash and CN¥7.00b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that CIMC Enric Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CN¥15.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, CIMC Enric Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for CIMC Enric Holdings

Fortunately, CIMC Enric Holdings grew its EBIT by 8.7% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine CIMC Enric Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. CIMC Enric Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, CIMC Enric Holdings produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case CIMC Enric Holdings has CN¥7.41b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥837m, being 69% of its EBIT. So we don't think CIMC Enric Holdings's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for CIMC Enric Holdings 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.