Is Tianli Holdings Group (HKG:117) Using Debt In A Risky Way?

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. We can see that Tianli Holdings Group Limited (HKG:117) 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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Tianli Holdings Group's Debt?

As you can see below, at the end of June 2025, Tianli Holdings Group had CN¥1.42b of debt, up from CN¥1.22b a year ago. Click the image for more detail. However, because it has a cash reserve of CN¥91.0m, its net debt is less, at about CN¥1.33b.

How Healthy Is Tianli Holdings Group's Balance Sheet?

We can see from the most recent balance sheet that Tianli Holdings Group had liabilities of CN¥1.36b falling due within a year, and liabilities of CN¥394.8m due beyond that. Offsetting these obligations, it had cash of CN¥91.0m as well as receivables valued at CN¥399.9m due within 12 months. So it has liabilities totalling CN¥1.26b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the CN¥395.3m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Tianli Holdings Group would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Tianli Holdings 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.

View our latest analysis for Tianli Holdings Group

In the last year Tianli Holdings Group wasn't profitable at an EBIT level, but managed to grow its revenue by 28%, to CN¥632m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Tianli Holdings Group managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable CN¥41m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized CN¥191m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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 example Tianli Holdings Group has 4 warning signs (and 3 which are concerning) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.