Keen Ocean International Holding (HKG:8070) Seems To Use Debt Rather Sparingly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Keen Ocean International Holding Limited (HKG:8070) does use debt in its business. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Keen Ocean International Holding's Debt?

As you can see below, Keen Ocean International Holding had HK$13.1m of debt at June 2025, down from HK$29.9m a year prior. However, it does have HK$29.3m in cash offsetting this, leading to net cash of HK$16.1m.

How Healthy Is Keen Ocean International Holding's Balance Sheet?

According to the balance sheet data, Keen Ocean International Holding had liabilities of HK$134.0m due within 12 months, but no longer term liabilities. Offsetting this, it had HK$29.3m in cash and HK$71.9m in receivables that were due within 12 months. So it has liabilities totalling HK$32.9m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Keen Ocean International Holding has a market capitalization of HK$128.0m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Keen Ocean International Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Keen Ocean International Holding

And we also note warmly that Keen Ocean International Holding grew its EBIT by 15% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Keen Ocean International Holding 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Keen Ocean International Holding 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. Happily for any shareholders, Keen Ocean International Holding actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While Keen Ocean International Holding does have more liabilities than liquid assets, it also has net cash of HK$16.1m. The cherry on top was that in converted 212% of that EBIT to free cash flow, bringing in HK$25m. So is Keen Ocean International Holding's debt a risk? It doesn't seem so to us. 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 1 warning sign for Keen Ocean International Holding you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.