Is Coolpoint Innonism Holding (HKG:8040) 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.' 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. Importantly, Coolpoint Innonism Holding Limited (HKG:8040) does carry debt. But should shareholders be worried about its use of debt?
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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
What Is Coolpoint Innonism Holding's Debt?
As you can see below, Coolpoint Innonism Holding had HK$18.1m of debt at September 2025, down from HK$23.3m a year prior. However, because it has a cash reserve of HK$14.4m, its net debt is less, at about HK$3.66m.
A Look At Coolpoint Innonism Holding's Liabilities
The latest balance sheet data shows that Coolpoint Innonism Holding had liabilities of HK$79.1m due within a year, and liabilities of HK$14.5m falling due after that. On the other hand, it had cash of HK$14.4m and HK$104.3m worth of receivables due within a year. So it actually has HK$25.2m more liquid assets than total liabilities.
This surplus suggests that Coolpoint Innonism Holding is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. When analysing debt levels, the balance sheet is the obvious place to start. But it is Coolpoint Innonism Holding'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 Coolpoint Innonism Holding
In the last year Coolpoint Innonism Holding had a loss before interest and tax, and actually shrunk its revenue by 3.5%, to HK$352m. That's not what we would hope to see.
Caveat Emptor
Importantly, Coolpoint Innonism Holding had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping HK$27m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Coolpoint Innonism Holding (2 make us uncomfortable) you should be aware of.
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.