Health Check: How Prudently Does China United Venture Investment (HKG:8159) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that China United Venture Investment Limited (HKG:8159) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is China United Venture Investment's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 China United Venture Investment had HK$20.9m of debt, an increase on HK$9.31m, over one year. But on the other hand it also has HK$22.6m in cash, leading to a HK$1.70m net cash position.

How Healthy Is China United Venture Investment's Balance Sheet?

We can see from the most recent balance sheet that China United Venture Investment had liabilities of HK$157.0m falling due within a year, and liabilities of HK$21.3m due beyond that. Offsetting this, it had HK$22.6m in cash and HK$89.5m in receivables that were due within 12 months. So its liabilities total HK$66.2m more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's HK$62.7m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Given that China United Venture Investment has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since China United Venture Investment will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for China United Venture Investment

Over 12 months, China United Venture Investment reported revenue of HK$159m, which is a gain of 2.8%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is China United Venture Investment?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months China United Venture Investment lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through HK$27m of cash and made a loss of HK$43m. Given it only has net cash of HK$1.70m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 - China United Venture Investment has 3 warning signs we think 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.

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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.