Here's Why China Environmental Technology and Bioenergy Holdings (HKG:1237) Can Manage Its Debt Responsibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that China Environmental Technology and Bioenergy Holdings Limited (HKG:1237) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does China Environmental Technology and Bioenergy Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 China Environmental Technology and Bioenergy Holdings had CN¥222.6m of debt, an increase on CN¥132.0m, over one year. However, its balance sheet shows it holds CN¥389.3m in cash, so it actually has CN¥166.7m net cash.

A Look At China Environmental Technology and Bioenergy Holdings' Liabilities

According to the last reported balance sheet, China Environmental Technology and Bioenergy Holdings had liabilities of CN¥253.5m due within 12 months, and liabilities of CN¥124.7m due beyond 12 months. On the other hand, it had cash of CN¥389.3m and CN¥70.1m worth of receivables due within a year. So it actually has CN¥81.1m more liquid assets than total liabilities.

This surplus strongly suggests that China Environmental Technology and Bioenergy Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that China Environmental Technology and Bioenergy Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for China Environmental Technology and Bioenergy Holdings

It was also good to see that despite losing money on the EBIT line last year, China Environmental Technology and Bioenergy Holdings turned things around in the last 12 months, delivering and EBIT of CN¥1.8m. When analysing debt levels, the balance sheet is the obvious place to start. But it is China Environmental Technology and Bioenergy 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While China Environmental Technology and Bioenergy Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, China Environmental Technology and Bioenergy Holdings burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that China Environmental Technology and Bioenergy Holdings has net cash of CN¥166.7m, as well as more liquid assets than liabilities. So we don't have any problem with China Environmental Technology and Bioenergy Holdings's use of debt. 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 China Environmental Technology and Bioenergy Holdings is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.