Health Check: How Prudently Does Da Ming International Holdings (HKG:1090) Use Debt?

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.' 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. As with many other companies Da Ming International Holdings Limited (HKG:1090) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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 Da Ming International Holdings Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Da Ming International Holdings had debt of CN¥11.5b, up from CN¥10.0b in one year. However, it does have CN¥511.0m in cash offsetting this, leading to net debt of about CN¥10.9b.

A Look At Da Ming International Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Da Ming International Holdings had liabilities of CN¥12.5b due within 12 months and liabilities of CN¥1.70b due beyond that. Offsetting these obligations, it had cash of CN¥511.0m as well as receivables valued at CN¥617.3m due within 12 months. So it has liabilities totalling CN¥13.1b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the CN¥1.02b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Da Ming International Holdings would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Da Ming International Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Da Ming International Holdings

In the last year Da Ming International Holdings had a loss before interest and tax, and actually shrunk its revenue by 8.2%, to CN¥45b. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Da Ming International Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CN¥198m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost CN¥411m in the last year. So we're not very excited about owning this stock. Its too risky for us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Da Ming International Holdings .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.