Is Shenyang Public Utility Holdings (HKG:747) A Risky Investment?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Shenyang Public Utility Holdings Company Limited (HKG:747) does use debt in its business. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Shenyang Public Utility Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Shenyang Public Utility Holdings had debt of CN¥13.2m, up from CN¥9.04m in one year. However, it does have CN¥8.60m in cash offsetting this, leading to net debt of about CN¥4.58m.

A Look At Shenyang Public Utility Holdings' Liabilities

The latest balance sheet data shows that Shenyang Public Utility Holdings had liabilities of CN¥197.3m due within a year, and liabilities of CN¥10.4m falling due after that. Offsetting this, it had CN¥8.60m in cash and CN¥118.0k in receivables that were due within 12 months. So its liabilities total CN¥199.0m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the CN¥102.1m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Shenyang Public Utility Holdings would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Shenyang Public Utility Holdings'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.

See our latest analysis for Shenyang Public Utility Holdings

In the last year Shenyang Public Utility Holdings had a loss before interest and tax, and actually shrunk its revenue by 72%, to CN¥1.7m. To be frank that doesn't bode well.

Caveat Emptor

While Shenyang Public Utility Holdings's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CN¥49m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through CN¥23m in negative free cash flow over the last year. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 5 warning signs for Shenyang Public Utility Holdings (3 don't sit too well with us) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.