Is WMHW Holdings (HKG:8217) 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.' 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 WMHW Holdings Limited (HKG:8217) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is WMHW Holdings's Debt?

The chart below, which you can click on for greater detail, shows that WMHW Holdings had HK$14.3m in debt in September 2025; about the same as the year before. But on the other hand it also has HK$54.2m in cash, leading to a HK$39.9m net cash position.

A Look At WMHW Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that WMHW Holdings had liabilities of HK$50.3m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of HK$54.2m as well as receivables valued at HK$35.2m due within 12 months. So it can boast HK$39.1m more liquid assets than total liabilities.

This excess liquidity is a great indication that WMHW Holdings' balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that WMHW 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 WMHW Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for WMHW Holdings

In the last year WMHW Holdings had a loss before interest and tax, and actually shrunk its revenue by 32%, to HK$28m. To be frank that doesn't bode well.

So How Risky Is WMHW Holdings?

Although WMHW Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of HK$20m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with WMHW Holdings (at least 1 which is concerning) , and understanding them should be part of your investment process.

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.

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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.