These 4 Measures Indicate That EPS Creative Health Technology Group (HKG:3860) Is Using Debt Extensively

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, EPS Creative Health Technology Group Limited (HKG:3860) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

How Much Debt Does EPS Creative Health Technology Group Carry?

The image below, which you can click on for greater detail, shows that at September 2025 EPS Creative Health Technology Group had debt of HK$56.3m, up from HK$49.1m in one year. But it also has HK$137.9m in cash to offset that, meaning it has HK$81.5m net cash.

How Healthy Is EPS Creative Health Technology Group's Balance Sheet?

We can see from the most recent balance sheet that EPS Creative Health Technology Group had liabilities of HK$181.9m falling due within a year, and liabilities of HK$12.5m due beyond that. Offsetting these obligations, it had cash of HK$137.9m as well as receivables valued at HK$63.7m due within 12 months. So it can boast HK$7.08m more liquid assets than total liabilities.

This state of affairs indicates that EPS Creative Health Technology Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the HK$360.3m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that EPS Creative Health Technology Group has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for EPS Creative Health Technology Group

Notably, EPS Creative Health Technology Group made a loss at the EBIT level, last year, but improved that to positive EBIT of HK$2.8m in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since EPS Creative Health Technology Group will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While EPS Creative Health Technology Group 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, EPS Creative Health Technology Group burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case EPS Creative Health Technology Group has HK$81.5m in net cash and a decent-looking balance sheet. So while EPS Creative Health Technology Group does not have a great balance sheet, it's certainly not too bad. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for EPS Creative Health Technology Group that you should be aware of before investing here.

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.