Is Henderson Investment (HKG:97) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Henderson Investment Limited (HKG:97) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

How Much Debt Does Henderson Investment Carry?

As you can see below, at the end of June 2025, Henderson Investment had HK$248.0m of debt, up from HK$113.0m a year ago. Click the image for more detail. However, it does have HK$134.0m in cash offsetting this, leading to net debt of about HK$114.0m.

How Strong Is Henderson Investment's Balance Sheet?

We can see from the most recent balance sheet that Henderson Investment had liabilities of HK$551.0m falling due within a year, and liabilities of HK$599.0m due beyond that. Offsetting these obligations, it had cash of HK$134.0m as well as receivables valued at HK$14.0m due within 12 months. So its liabilities total HK$1.00b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the HK$667.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Henderson Investment would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Henderson Investment will need earnings to service that debt. 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 Henderson Investment

Over 12 months, Henderson Investment saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Henderson Investment produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable HK$88m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of HK$97m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be 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. Case in point: We've spotted 3 warning signs for Henderson Investment you should be aware of, and 2 of them shouldn't be ignored.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.