Is Kin Shing Holdings (HKG:1630) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Kin Shing Holdings Limited (HKG:1630) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Kin Shing Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Kin Shing Holdings had HK$163.7m of debt, an increase on HK$149.5m, over one year. However, its balance sheet shows it holds HK$210.1m in cash, so it actually has HK$46.4m net cash.

How Strong Is Kin Shing Holdings' Balance Sheet?

We can see from the most recent balance sheet that Kin Shing Holdings had liabilities of HK$298.2m falling due within a year, and liabilities of HK$1.43m due beyond that. On the other hand, it had cash of HK$210.1m and HK$186.7m worth of receivables due within a year. So it actually has HK$97.1m more liquid assets than total liabilities.

This surplus liquidity suggests that Kin Shing Holdings' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Kin Shing Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Kin Shing Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Kin Shing Holdings

Over 12 months, Kin Shing Holdings made a loss at the EBIT level, and saw its revenue drop to HK$813m, which is a fall of 28%. That makes us nervous, to say the least.

So How Risky Is Kin Shing Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Kin Shing Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of HK$15m and booked a HK$18m accounting loss. But the saving grace is the HK$46.4m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. To that end, you should be aware of the 2 warning signs we've spotted with Kin Shing Holdings .

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.