Is Coolpad Group (HKG:2369) Weighed On By Its Debt Load?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Coolpad Group Limited (HKG:2369) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Coolpad Group's Net Debt?

As you can see below, at the end of June 2025, Coolpad Group had HK$1.23b of debt, up from HK$1.15b a year ago. Click the image for more detail. However, it also had HK$222.8m in cash, and so its net debt is HK$1.01b.

How Healthy Is Coolpad Group's Balance Sheet?

We can see from the most recent balance sheet that Coolpad Group had liabilities of HK$1.10b falling due within a year, and liabilities of HK$1.54b due beyond that. Offsetting these obligations, it had cash of HK$222.8m as well as receivables valued at HK$55.1m due within 12 months. So its liabilities total HK$2.36b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the HK$400.5m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Coolpad Group would likely require a major re-capitalisation if it had to pay its creditors today. 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 Coolpad Group 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.

See our latest analysis for Coolpad Group

In the last year Coolpad Group wasn't profitable at an EBIT level, but managed to grow its revenue by 8.6%, to HK$422m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Coolpad Group had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping HK$179m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized HK$103m 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Coolpad Group (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

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.