Does China Shun Ke Long Holdings (HKG:974) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. Importantly, China Shun Ke Long Holdings Limited (HKG:974) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is China Shun Ke Long Holdings's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 China Shun Ke Long Holdings had debt of CN¥62.0m, up from CN¥28.0m in one year. However, it does have CN¥25.5m in cash offsetting this, leading to net debt of about CN¥36.5m.

How Healthy Is China Shun Ke Long Holdings' Balance Sheet?

We can see from the most recent balance sheet that China Shun Ke Long Holdings had liabilities of CN¥173.5m falling due within a year, and liabilities of CN¥21.7m due beyond that. Offsetting this, it had CN¥25.5m in cash and CN¥37.0m in receivables that were due within 12 months. So its liabilities total CN¥132.7m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because China Shun Ke Long Holdings is worth CN¥282.2m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since China Shun Ke Long Holdings 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 China Shun Ke Long Holdings

In the last year China Shun Ke Long Holdings had a loss before interest and tax, and actually shrunk its revenue by 19%, to CN¥531m. We would much prefer see growth.

Caveat Emptor

Not only did China Shun Ke Long Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping CN¥34m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥8.8m 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for China Shun Ke Long Holdings (of which 2 shouldn't be ignored!) you should know about.

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.