Is Weiye Holdings (HKG:1570) Weighed On By Its Debt Load?

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.' 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 can see that Weiye Holdings Limited (HKG:1570) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Weiye Holdings Carry?

The chart below, which you can click on for greater detail, shows that Weiye Holdings had CN¥993.5m in debt in June 2025; about the same as the year before. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is Weiye Holdings' Balance Sheet?

The latest balance sheet data shows that Weiye Holdings had liabilities of CN¥1.95b due within a year, and liabilities of CN¥412.3m falling due after that. Offsetting this, it had CN¥7.62m in cash and CN¥1.15b in receivables that were due within 12 months. So its liabilities total CN¥1.21b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CN¥369.6m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Weiye Holdings would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Weiye Holdings 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 Weiye Holdings

Over 12 months, Weiye Holdings made a loss at the EBIT level, and saw its revenue drop to CN¥23m, which is a fall of 89%. That makes us nervous, to say the least.

Caveat Emptor

While Weiye 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. Indeed, it lost a very considerable CN¥62m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized CN¥9.9m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Weiye Holdings has 4 warning signs (and 2 which shouldn't be ignored) we think 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.

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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.