Is China Brilliant Global (HKG:8026) Using Too Much 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.' 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 China Brilliant Global Limited (HKG:8026) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does China Brilliant Global Carry?

The chart below, which you can click on for greater detail, shows that China Brilliant Global had HK$22.9m in debt in September 2025; about the same as the year before. However, its balance sheet shows it holds HK$26.4m in cash, so it actually has HK$3.48m net cash.

How Strong Is China Brilliant Global's Balance Sheet?

The latest balance sheet data shows that China Brilliant Global had liabilities of HK$30.7m due within a year, and liabilities of HK$340.0k falling due after that. Offsetting this, it had HK$26.4m in cash and HK$96.5m in receivables that were due within 12 months. So it actually has HK$91.8m more liquid assets than total liabilities.

This excess liquidity suggests that China Brilliant Global is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, China Brilliant Global boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for China Brilliant Global

On top of that, China Brilliant Global grew its EBIT by 56% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since China Brilliant Global 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While China Brilliant Global has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, China Brilliant Global recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While it is always sensible to investigate a company's debt, in this case China Brilliant Global has HK$3.48m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 56% over the last year. So we don't think China Brilliant Global's use of debt is 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. We've identified 2 warning signs with China Brilliant Global (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.