Carrianna Group Holdings (HKG:126) Has A Somewhat Strained Balance Sheet

Explore Carrianna Group Holdings's Fair Values from the Community and select yours

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.' 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. We can see that Carrianna Group Holdings Company Limited (HKG:126) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Carrianna Group Holdings Carry?

The image below, which you can click on for greater detail, shows that Carrianna Group Holdings had debt of HK$1.62b at the end of March 2025, a reduction from HK$1.74b over a year. On the flip side, it has HK$181.6m in cash leading to net debt of about HK$1.44b.

How Healthy Is Carrianna Group Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Carrianna Group Holdings had liabilities of HK$1.97b due within 12 months and liabilities of HK$691.4m due beyond that. Offsetting these obligations, it had cash of HK$181.6m as well as receivables valued at HK$321.0m due within 12 months. So its liabilities total HK$2.16b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the HK$188.6m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Carrianna Group Holdings would likely require a major re-capitalisation if it had to pay its creditors today.

See our latest analysis for Carrianna Group Holdings

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Carrianna Group Holdings shareholders face the double whammy of a high net debt to EBITDA ratio (16.0), and fairly weak interest coverage, since EBIT is just 0.28 times the interest expense. The debt burden here is substantial. However, it should be some comfort for shareholders to recall that Carrianna Group Holdings actually grew its EBIT by a hefty 869%, over the last 12 months. If it can keep walking that path it will be in a position to shed its debt with relative ease. When analysing debt levels, the balance sheet is the obvious place to start. But it is Carrianna Group Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we always check how much of that EBIT is translated into free cash flow. Over the last three years, Carrianna Group Holdings actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

On the face of it, Carrianna Group Holdings's interest cover left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But on the bright side, its conversion of EBIT to free cash flow is a good sign, and makes us more optimistic. Looking at the balance sheet and taking into account all these factors, we do believe that debt is making Carrianna Group Holdings stock a bit risky. Some people like that sort of risk, but we're mindful of the potential pitfalls, so we'd probably prefer it carry less debt. 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. To that end, you should learn about the 3 warning signs we've spotted with Carrianna Group Holdings (including 2 which are a bit concerning) .

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.