Does Southern Packaging Group (SGX:BQP) Have A Healthy Balance Sheet?

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 Southern Packaging Group Limited (SGX:BQP) makes use of debt. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 Southern Packaging Group Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Southern Packaging Group had debt of CN¥408.8m, up from CN¥386.2m in one year. However, it does have CN¥74.0m in cash offsetting this, leading to net debt of about CN¥334.7m.

How Strong Is Southern Packaging Group's Balance Sheet?

According to the last reported balance sheet, Southern Packaging Group had liabilities of CN¥523.8m due within 12 months, and liabilities of CN¥79.6m due beyond 12 months. Offsetting this, it had CN¥74.0m in cash and CN¥159.0m in receivables that were due within 12 months. So its liabilities total CN¥370.4m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CN¥145.9m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Southern Packaging Group would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Southern Packaging Group's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for Southern Packaging Group

Over 12 months, Southern Packaging Group made a loss at the EBIT level, and saw its revenue drop to CN¥639m, which is a fall of 10%. We would much prefer see growth.

Caveat Emptor

Not only did Southern Packaging Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping CN¥29m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of CN¥42m in the last year. So while it's not wise to assume the company will fail, we do think it's risky. 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. We've identified 4 warning signs with Southern Packaging Group (at least 3 which are concerning) , and understanding them should be part of your investment process.

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.