Here's Why Cowell e Holdings (HKG:1415) Can Manage Its Debt Responsibly

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 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 note that Cowell e Holdings Inc. (HKG:1415) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Cowell e Holdings Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Cowell e Holdings had debt of US$410.2m, up from US$307.6m in one year. However, its balance sheet shows it holds US$480.8m in cash, so it actually has US$70.6m net cash.

A Look At Cowell e Holdings' Liabilities

We can see from the most recent balance sheet that Cowell e Holdings had liabilities of US$673.7m falling due within a year, and liabilities of US$162.6m due beyond that. Offsetting these obligations, it had cash of US$480.8m as well as receivables valued at US$329.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$26.4m.

Having regard to Cowell e Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$2.95b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Cowell e Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Cowell e Holdings

Better yet, Cowell e Holdings grew its EBIT by 381% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Cowell e Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Cowell e Holdings 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. Considering the last three years, Cowell e Holdings actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

We could understand if investors are concerned about Cowell e Holdings's liabilities, but we can be reassured by the fact it has has net cash of US$70.6m. And we liked the look of last year's 381% year-on-year EBIT growth. So we don't have any problem with Cowell e Holdings's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Cowell e Holdings's earnings per share history for free.

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.