Health Check: How Prudently Does S.A.I. Leisure Group (HKG:1832) Use Debt?

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. Importantly, S.A.I. Leisure Group Company Limited (HKG:1832) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is S.A.I. Leisure Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 S.A.I. Leisure Group had US$81.7m of debt, an increase on US$77.9m, over one year. However, it also had US$2.46m in cash, and so its net debt is US$79.3m.

A Look At S.A.I. Leisure Group's Liabilities

The latest balance sheet data shows that S.A.I. Leisure Group had liabilities of US$56.3m due within a year, and liabilities of US$53.4m falling due after that. Offsetting this, it had US$2.46m in cash and US$4.85m in receivables that were due within 12 months. So its liabilities total US$102.3m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$27.7m 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 definitely think shareholders need to watch this one closely. After all, S.A.I. Leisure Group would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is S.A.I. Leisure Group'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.

View our latest analysis for S.A.I. Leisure Group

Over 12 months, S.A.I. Leisure Group saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months S.A.I. Leisure Group produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$11m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized US$2.0m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example S.A.I. Leisure Group has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

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.