WLS Holdings (HKG:8021) Is Making Moderate Use Of 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 WLS Holdings Limited (HKG:8021) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does WLS Holdings Carry?

The chart below, which you can click on for greater detail, shows that WLS Holdings had HK$152.6m in debt in April 2025; about the same as the year before. However, it also had HK$68.8m in cash, and so its net debt is HK$83.8m.

How Strong Is WLS Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that WLS Holdings had liabilities of HK$207.6m due within 12 months and no liabilities due beyond that. Offsetting this, it had HK$68.8m in cash and HK$482.0m in receivables that were due within 12 months. So it actually has HK$343.1m more liquid assets than total liabilities.

This luscious liquidity implies that WLS Holdings' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. There's no doubt that we learn most about debt from the balance sheet. But it is WLS Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for WLS Holdings

In the last year WLS Holdings had a loss before interest and tax, and actually shrunk its revenue by 4.0%, to HK$79m. We would much prefer see growth.

Caveat Emptor

Importantly, WLS Holdings had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost HK$412k at the EBIT level. Having said that, the balance sheet has plenty of liquid assets for now. That will give the company some time and space to grow and develop its business as need be. While the stock is probably a bit risky, there may be an opportunity if the business itself improves, allowing the company to stage a recovery. 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 1 warning sign for WLS Holdings that you should be aware of.

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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.