We Think CHK Oil (HKG:632) Has A Fair Chunk Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 CHK Oil Limited (HKG:632) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 CHK Oil Carry?

As you can see below, CHK Oil had HK$12.0m of debt at June 2025, down from HK$14.4m a year prior. However, it also had HK$1.92m in cash, and so its net debt is HK$10.1m.

How Strong Is CHK Oil's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CHK Oil had liabilities of HK$48.5m due within 12 months and liabilities of HK$6.10m due beyond that. Offsetting these obligations, it had cash of HK$1.92m as well as receivables valued at HK$6.31m due within 12 months. So it has liabilities totalling HK$46.4m more than its cash and near-term receivables, combined.

Since publicly traded CHK Oil shares are worth a total of HK$378.1m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is CHK Oil's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for CHK Oil

In the last year CHK Oil had a loss before interest and tax, and actually shrunk its revenue by 2.2%, to HK$155m. We would much prefer see growth.

Caveat Emptor

Importantly, CHK Oil had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at HK$11m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of HK$20m into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for CHK Oil (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.