We Think Duiba Group (HKG:1753) Has A Fair Chunk Of Debt

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.' 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 can see that Duiba Group Limited (HKG:1753) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Duiba Group's Debt?

As you can see below, at the end of June 2025, Duiba Group had CN¥855.8m of debt, up from CN¥681.2m a year ago. Click the image for more detail. However, it does have CN¥561.7m in cash offsetting this, leading to net debt of about CN¥294.1m.

How Strong Is Duiba Group's Balance Sheet?

According to the last reported balance sheet, Duiba Group had liabilities of CN¥1.23b due within 12 months, and liabilities of CN¥499.0k due beyond 12 months. Offsetting these obligations, it had cash of CN¥561.7m as well as receivables valued at CN¥805.6m due within 12 months. So it can boast CN¥137.2m more liquid assets than total liabilities.

This luscious liquidity implies that Duiba Group's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Duiba Group will need earnings to service that debt. 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 Duiba Group

In the last year Duiba Group had a loss before interest and tax, and actually shrunk its revenue by 5.7%, to CN¥798m. That's not what we would hope to see.

Caveat Emptor

Importantly, Duiba Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CN¥76m at the EBIT level. That said, we're impressed with the strong balance sheet liquidity. That will give the company some time and space to grow and develop its business as need be. The company is risky because it will grow into the future to get to profitability and free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Duiba Group (1 makes us a bit uncomfortable) you should be aware of.

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.