Does Ernest Borel Holdings (HKG:1856) Have A Healthy Balance Sheet?

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 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 Ernest Borel Holdings Limited (HKG:1856) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Ernest Borel Holdings Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Ernest Borel Holdings had debt of HK$360.2m, up from HK$314.2m in one year. However, because it has a cash reserve of HK$26.6m, its net debt is less, at about HK$333.6m.

How Healthy Is Ernest Borel Holdings' Balance Sheet?

We can see from the most recent balance sheet that Ernest Borel Holdings had liabilities of HK$416.4m falling due within a year, and liabilities of HK$40.4m due beyond that. On the other hand, it had cash of HK$26.6m and HK$125.2m worth of receivables due within a year. So its liabilities total HK$305.0m more than the combination of its cash and short-term receivables.

Ernest Borel Holdings has a market capitalization of HK$662.9m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Ernest Borel Holdings's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for Ernest Borel Holdings

In the last year Ernest Borel Holdings had a loss before interest and tax, and actually shrunk its revenue by 21%, to HK$97m. That makes us nervous, to say the least.

Caveat Emptor

While Ernest Borel Holdings's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping HK$85m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled HK$33m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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. For example, we've discovered 3 warning signs for Ernest Borel Holdings (2 shouldn't be ignored!) that you should be aware of before investing here.

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.