Is Star Shine Holdings Group (HKG:1440) Using Debt Sensibly?

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.' 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. As with many other companies Star Shine Holdings Group Limited (HKG:1440) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Star Shine Holdings Group's Net Debt?

As you can see below, at the end of June 2025, Star Shine Holdings Group had CN¥73.9m of debt, up from CN¥37.2m a year ago. Click the image for more detail. But on the other hand it also has CN¥251.0m in cash, leading to a CN¥177.0m net cash position.

How Healthy Is Star Shine Holdings Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Star Shine Holdings Group had liabilities of CN¥222.8m due within 12 months and liabilities of CN¥5.27m due beyond that. Offsetting this, it had CN¥251.0m in cash and CN¥98.6m in receivables that were due within 12 months. So it can boast CN¥121.5m more liquid assets than total liabilities.

This state of affairs indicates that Star Shine Holdings Group's 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¥10.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Star Shine Holdings Group 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 Star Shine Holdings Group 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.

View our latest analysis for Star Shine Holdings Group

In the last year Star Shine Holdings Group wasn't profitable at an EBIT level, but managed to grow its revenue by 10%, to CN¥600m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Star Shine Holdings Group?

While Star Shine Holdings Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥43m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Case in point: We've spotted 2 warning signs for Star Shine Holdings Group you should be aware of, and 1 of them can't be ignored.

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.