Is Magnus Concordia Group (HKG:1172) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Magnus Concordia Group Limited (HKG:1172) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Magnus Concordia Group's Net Debt?

The image below, which you can click on for greater detail, shows that Magnus Concordia Group had debt of HK$131.7m at the end of March 2025, a reduction from HK$155.8m over a year. However, because it has a cash reserve of HK$20.3m, its net debt is less, at about HK$111.4m.

How Strong Is Magnus Concordia Group's Balance Sheet?

According to the last reported balance sheet, Magnus Concordia Group had liabilities of HK$531.3m due within 12 months, and liabilities of HK$20.8m due beyond 12 months. Offsetting this, it had HK$20.3m in cash and HK$66.8m in receivables that were due within 12 months. So it has liabilities totalling HK$465.0m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the HK$161.8m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Magnus Concordia Group would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Magnus Concordia Group 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.

View our latest analysis for Magnus Concordia Group

In the last year Magnus Concordia Group had a loss before interest and tax, and actually shrunk its revenue by 24%, to HK$206m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Magnus Concordia Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping HK$31m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of HK$85m in the last year. So we think this stock is quite risky. We'd prefer to pass. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Magnus Concordia Group (of which 2 make us uncomfortable!) 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.