Is Brainhole Technology (HKG:2203) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Brainhole Technology Limited (HKG:2203) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Brainhole Technology Carry?

As you can see below, Brainhole Technology had HK$62.5m of debt at June 2025, down from HK$161.6m a year prior. But on the other hand it also has HK$79.4m in cash, leading to a HK$16.9m net cash position.

How Healthy Is Brainhole Technology's Balance Sheet?

According to the last reported balance sheet, Brainhole Technology had liabilities of HK$107.1m due within 12 months, and liabilities of HK$287.0k due beyond 12 months. On the other hand, it had cash of HK$79.4m and HK$24.3m worth of receivables due within a year. So it has liabilities totalling HK$3.62m more than its cash and near-term receivables, combined.

Of course, Brainhole Technology has a market capitalization of HK$176.0m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Brainhole Technology also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Brainhole Technology 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.

See our latest analysis for Brainhole Technology

In the last year Brainhole Technology had a loss before interest and tax, and actually shrunk its revenue by 48%, to HK$89m. That makes us nervous, to say the least.

So How Risky Is Brainhole Technology?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Brainhole Technology lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through HK$26m of cash and made a loss of HK$146m. But the saving grace is the HK$16.9m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For example, we've discovered 3 warning signs for Brainhole Technology (1 is significant!) that you should be aware of before investing here.

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.