Does BExcellent Group Holdings (HKG:1775) Have A Healthy Balance Sheet?

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.' 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. 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.

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for BExcellent Group Holdings

What Is BExcellent Group Holdings's Net Debt?

As you can see below, at the end of January 2024, BExcellent Group Holdings had HK$79.1m of debt, up from HK$54.8m a year ago. Click the image for more detail. But on the other hand it also has HK$112.1m in cash, leading to a HK$33.0m net cash position.

How Healthy Is BExcellent Group Holdings' Balance Sheet?

The latest balance sheet data shows that BExcellent Group Holdings had liabilities of HK$130.4m due within a year, and liabilities of HK$6.86m falling due after that. On the other hand, it had cash of HK$112.1m and HK$15.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by HK$9.19m.

Since publicly traded BExcellent Group Holdings shares are worth a total of HK$108.1m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, BExcellent Group Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is BExcellent Group Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year BExcellent Group Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to HK$154m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is BExcellent Group Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months BExcellent Group Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through HK$18m of cash and made a loss of HK$20m. But the saving grace is the HK$33.0m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Be aware that BExcellent Group Holdings is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.

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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.