Is Ka Shui International Holdings (HKG:822) Using Debt In A Risky Way?

Warren Buffett famously said, '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. Importantly, Ka Shui International Holdings Limited (HKG:822) does carry debt. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt Dangerous?

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 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Ka Shui International Holdings Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Ka Shui International Holdings had debt of HK$217.2m, up from HK$201.2m in one year. But it also has HK$268.0m in cash to offset that, meaning it has HK$50.8m net cash.

How Strong Is Ka Shui International Holdings' Balance Sheet?

According to the last reported balance sheet, Ka Shui International Holdings had liabilities of HK$585.7m due within 12 months, and liabilities of HK$98.8m due beyond 12 months. Offsetting these obligations, it had cash of HK$268.0m as well as receivables valued at HK$447.3m due within 12 months. So it can boast HK$30.9m more liquid assets than total liabilities.

This surplus suggests that Ka Shui International Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Ka Shui International Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Ka Shui International 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 Ka Shui International Holdings

In the last year Ka Shui International Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to HK$1.5b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Ka Shui International Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Ka Shui International Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through HK$850k of cash and made a loss of HK$51m. While this does make the company a bit risky, it's important to remember it has net cash of HK$50.8m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 Ka Shui International Holdings (at least 1 which is concerning) , and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.