Country Garden Services Holdings (HKG:6098) Could Easily Take On More Debt

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. We note that Country Garden Services Holdings Company Limited (HKG:6098) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Country Garden Services Holdings Carry?

The image below, which you can click on for greater detail, shows that Country Garden Services Holdings had debt of CN¥858.2m at the end of June 2025, a reduction from CN¥1.21b over a year. But it also has CN¥14.8b in cash to offset that, meaning it has CN¥13.9b net cash.

A Look At Country Garden Services Holdings' Liabilities

We can see from the most recent balance sheet that Country Garden Services Holdings had liabilities of CN¥28.8b falling due within a year, and liabilities of CN¥3.37b due beyond that. Offsetting these obligations, it had cash of CN¥14.8b as well as receivables valued at CN¥21.8b due within 12 months. So it actually has CN¥4.44b more liquid assets than total liabilities.

This surplus suggests that Country Garden Services Holdings is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Country Garden Services Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Country Garden Services Holdings

On top of that, Country Garden Services Holdings grew its EBIT by 80% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Country Garden Services Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Country Garden Services 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. During the last three years, Country Garden Services Holdings produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Country Garden Services Holdings has net cash of CN¥13.9b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 80% over the last year. So is Country Garden Services Holdings's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Country Garden Services Holdings that you should be aware of.

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.