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We Think Billion Industrial Holdings (HKG:2299) Is Taking Some Risk With Its Debt

Simply Wall St · 1d ago

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.' 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. We note that Billion Industrial Holdings Limited (HKG:2299) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Billion Industrial Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Billion Industrial Holdings had CN¥3.74b of debt, an increase on CN¥382.8m, over one year. However, its balance sheet shows it holds CN¥4.78b in cash, so it actually has CN¥1.04b net cash.

debt-equity-history-analysis
SEHK:2299 Debt to Equity History December 23rd 2025

A Look At Billion Industrial Holdings' Liabilities

The latest balance sheet data shows that Billion Industrial Holdings had liabilities of CN¥16.8b due within a year, and liabilities of CN¥313.0m falling due after that. Offsetting these obligations, it had cash of CN¥4.78b as well as receivables valued at CN¥753.5m due within 12 months. So its liabilities total CN¥11.6b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of CN¥9.23b, we think shareholders really should watch Billion Industrial Holdings's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Billion Industrial Holdings boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

Check out our latest analysis for Billion Industrial Holdings

In addition to that, we're happy to report that Billion Industrial Holdings has boosted its EBIT by 54%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Billion Industrial 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Billion Industrial 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. Over the last three years, Billion Industrial Holdings saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While Billion Industrial Holdings does have more liabilities than liquid assets, it also has net cash of CN¥1.04b. And it impressed us with its EBIT growth of 54% over the last year. So while Billion Industrial Holdings does not have a great balance sheet, it's certainly not too bad. 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. Be aware that Billion Industrial Holdings is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.