Is China Qidian Guofeng Holdings (HKG:1280) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, China Qidian Guofeng Holdings Limited (HKG:1280) 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?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does China Qidian Guofeng Holdings Carry?

As you can see below, China Qidian Guofeng Holdings had CN¥129.8m of debt at June 2025, down from CN¥158.9m a year prior. On the flip side, it has CN¥25.0m in cash leading to net debt of about CN¥104.8m.

How Strong Is China Qidian Guofeng Holdings' Balance Sheet?

We can see from the most recent balance sheet that China Qidian Guofeng Holdings had liabilities of CN¥232.3m falling due within a year, and liabilities of CN¥161.3m due beyond that. On the other hand, it had cash of CN¥25.0m and CN¥21.2m worth of receivables due within a year. So it has liabilities totalling CN¥347.3m more than its cash and near-term receivables, combined.

Since publicly traded China Qidian Guofeng Holdings shares are worth a total of CN¥7.59b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, China Qidian Guofeng Holdings has virtually no net debt, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is China Qidian Guofeng 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.

View our latest analysis for China Qidian Guofeng Holdings

In the last year China Qidian Guofeng Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 28%, to CN¥451m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate China Qidian Guofeng Holdings's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at CN¥21m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CN¥48m of cash over the last year. So to be blunt we think it is risky. 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. For instance, we've identified 3 warning signs for China Qidian Guofeng Holdings that you should be aware of.

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.