Here's Why China Resources Beer (Holdings) (HKG:291) Can Manage Its Debt Responsibly

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 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. Importantly, China Resources Beer (Holdings) Company Limited (HKG:291) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is China Resources Beer (Holdings)'s Debt?

As you can see below, China Resources Beer (Holdings) had CN¥1.04b of debt at June 2025, down from CN¥1.38b a year prior. However, its balance sheet shows it holds CN¥8.83b in cash, so it actually has CN¥7.80b net cash.

How Healthy Is China Resources Beer (Holdings)'s Balance Sheet?

We can see from the most recent balance sheet that China Resources Beer (Holdings) had liabilities of CN¥24.8b falling due within a year, and liabilities of CN¥6.36b due beyond that. Offsetting these obligations, it had cash of CN¥8.83b as well as receivables valued at CN¥3.27b due within 12 months. So its liabilities total CN¥19.0b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because China Resources Beer (Holdings) is worth a massive CN¥78.4b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, China Resources Beer (Holdings) also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for China Resources Beer (Holdings)

Also good is that China Resources Beer (Holdings) grew its EBIT at 16% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine China Resources Beer (Holdings)'s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While China Resources Beer (Holdings) has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, China Resources Beer (Holdings) recorded free cash flow worth 71% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While China Resources Beer (Holdings) does have more liabilities than liquid assets, it also has net cash of CN¥7.80b. The cherry on top was that in converted 71% of that EBIT to free cash flow, bringing in CN¥5.0b. So is China Resources Beer (Holdings)'s debt a risk? It doesn't seem so to us. 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 be aware of the 1 warning sign we've spotted with China Resources Beer (Holdings) .

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.