Chervon Holdings (HKG:2285) Has A Rock Solid Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Chervon Holdings Limited (HKG:2285) does use debt in its business. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

What Is Chervon Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Chervon Holdings had US$311.7m of debt in June 2025, down from US$329.0m, one year before. However, its balance sheet shows it holds US$495.1m in cash, so it actually has US$183.4m net cash.

A Look At Chervon Holdings' Liabilities

According to the last reported balance sheet, Chervon Holdings had liabilities of US$644.0m due within 12 months, and liabilities of US$173.9m due beyond 12 months. On the other hand, it had cash of US$495.1m and US$363.0m worth of receivables due within a year. So it actually has US$40.1m more liquid assets than total liabilities.

This surplus suggests that Chervon Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Chervon Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Chervon Holdings

Although Chervon Holdings made a loss at the EBIT level, last year, it was also good to see that it generated US$197m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Chervon Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Chervon 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. Happily for any shareholders, Chervon Holdings actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Chervon Holdings has net cash of US$183.4m, as well as more liquid assets than liabilities. The cherry on top was that in converted 100% of that EBIT to free cash flow, bringing in US$197m. So is Chervon Holdings's debt a risk? It doesn't seem so to us. 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 instance, we've identified 1 warning sign for Chervon Holdings that you should be aware of.

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.