Does BExcellent Group Holdings (HKG:1775) Have A Healthy 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies BExcellent Group Holdings Limited (HKG:1775) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for BExcellent Group Holdings

What Is BExcellent Group Holdings's Debt?

The image below, which you can click on for greater detail, shows that at July 2023 BExcellent Group Holdings had debt of HK$63.6m, up from HK$55.1m in one year. But on the other hand it also has HK$108.8m in cash, leading to a HK$45.2m net cash position.

A Look At BExcellent Group Holdings' Liabilities

According to the last reported balance sheet, BExcellent Group Holdings had liabilities of HK$100.9m due within 12 months, and liabilities of HK$10.3m due beyond 12 months. On the other hand, it had cash of HK$108.8m and HK$2.63m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to BExcellent Group Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the HK$101.5m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, BExcellent Group Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is BExcellent 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.

Over 12 months, BExcellent Group Holdings saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is BExcellent Group Holdings?

While BExcellent Group Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow HK$1.4m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. 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 2 warning signs for BExcellent Group Holdings (of which 1 is potentially serious!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.