Is China Resources Beverage (Holdings) (HKG:2460) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that China Resources Beverage (Holdings) Company Limited (HKG:2460) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does China Resources Beverage (Holdings) Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 China Resources Beverage (Holdings) had CN¥161.6m of debt, an increase on none, over one year. But it also has CN¥12.4b in cash to offset that, meaning it has CN¥12.2b net cash.

How Strong Is China Resources Beverage (Holdings)'s Balance Sheet?

According to the last reported balance sheet, China Resources Beverage (Holdings) had liabilities of CN¥8.69b due within 12 months, and liabilities of CN¥537.3m due beyond 12 months. On the other hand, it had cash of CN¥12.4b and CN¥995.2m worth of receivables due within a year. So it actually has CN¥4.15b more liquid assets than total liabilities.

This surplus suggests that China Resources Beverage (Holdings) is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that China Resources Beverage (Holdings) has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for China Resources Beverage (Holdings)

It is just as well that China Resources Beverage (Holdings)'s load is not too heavy, because its EBIT was down 25% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine China Resources Beverage (Holdings)'s ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. China Resources Beverage (Holdings) may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, China Resources Beverage (Holdings) saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case China Resources Beverage (Holdings) has CN¥12.2b in net cash and a decent-looking balance sheet. So we don't have any problem with China Resources Beverage (Holdings)'s use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in China Resources Beverage (Holdings), you may well want to click here to check an interactive graph of its earnings per share history.

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.