Is Mount Everest Gold Group (HKG:1815) 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.' 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. As with many other companies Mount Everest Gold Group Company Limited (HKG:1815) makes use of debt. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Mount Everest Gold Group's Debt?

The image below, which you can click on for greater detail, shows that Mount Everest Gold Group had debt of CN¥109.2m at the end of June 2025, a reduction from CN¥132.6m over a year. However, it does have CN¥532.2m in cash offsetting this, leading to net cash of CN¥423.0m.

How Strong Is Mount Everest Gold Group's Balance Sheet?

We can see from the most recent balance sheet that Mount Everest Gold Group had liabilities of CN¥356.8m falling due within a year, and liabilities of CN¥29.0k due beyond that. On the other hand, it had cash of CN¥532.2m and CN¥201.3m worth of receivables due within a year. So it can boast CN¥376.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Mount Everest Gold Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Mount Everest Gold Group boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Mount Everest Gold Group

Even more impressive was the fact that Mount Everest Gold Group grew its EBIT by 472% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is Mount Everest Gold Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Mount Everest Gold Group 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 two years, Mount Everest Gold Group actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Mount Everest Gold Group has CN¥423.0m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 100% of that EBIT to free cash flow, bringing in CN¥107m. So is Mount Everest Gold Group's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Mount Everest Gold Group 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.