Would WLS Holdings (HKG:8021) Be Better Off With Less 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 WLS Holdings Limited (HKG:8021) makes use of debt. But the real question is whether this debt is making the company risky.

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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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is WLS Holdings's Net Debt?

As you can see below, WLS Holdings had HK$152.6m of debt, at April 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 HK$71.6m, its net debt is less, at about HK$80.9m.

How Healthy 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. On the other hand, it had cash of HK$71.6m and HK$491.3m worth of receivables due within a year. So it actually has HK$355.3m more liquid assets than total liabilities.

This excess liquidity is a great indication that WLS Holdings' balance sheet is almost as strong as Fort Knox. 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$512k at the EBIT level. That said, we're impressed with the strong balance sheet liquidity. 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. 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. Be aware that WLS Holdings is showing 2 warning signs in our investment analysis , you should know about...

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.