Blue River Holdings (HKG:498) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Blue River Holdings Limited (HKG:498) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Blue River Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Blue River Holdings had HK$91.1m of debt, an increase on HK$16.0m, over one year. However, it does have HK$21.6m in cash offsetting this, leading to net debt of about HK$69.5m.

A Look At Blue River Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Blue River Holdings had liabilities of HK$119.8m due within 12 months and liabilities of HK$1.45m due beyond that. Offsetting these obligations, it had cash of HK$21.6m as well as receivables valued at HK$24.2m due within 12 months. So it has liabilities totalling HK$75.5m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of HK$86.4m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Blue River Holdings'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.

See our latest analysis for Blue River Holdings

In the last year Blue River Holdings had a loss before interest and tax, and actually shrunk its revenue by 37%, to HK$39m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Blue River Holdings'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 HK$47m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of HK$177m. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Blue River Holdings (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.

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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.