Here's Why Galaxy Entertainment Group (HKG:27) Can Manage Its Debt Responsibly

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. As with many other companies Galaxy Entertainment Group Limited (HKG:27) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Galaxy Entertainment Group Carry?

As you can see below, Galaxy Entertainment Group had HK$496.8m of debt at June 2025, down from HK$3.91b a year prior. But on the other hand it also has HK$20.7b in cash, leading to a HK$20.2b net cash position.

How Healthy Is Galaxy Entertainment Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Galaxy Entertainment Group had liabilities of HK$11.4b due within 12 months and liabilities of HK$3.32b due beyond that. Offsetting this, it had HK$20.7b in cash and HK$2.55b in receivables that were due within 12 months. So it actually has HK$8.51b more liquid assets than total liabilities.

This short term liquidity is a sign that Galaxy Entertainment Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Galaxy Entertainment Group has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Galaxy Entertainment Group

Also good is that Galaxy Entertainment Group grew its EBIT at 13% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Galaxy Entertainment Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Galaxy Entertainment Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Galaxy Entertainment Group's free cash flow amounted to 30% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Galaxy Entertainment Group has net cash of HK$20.2b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 13% in the last twelve months. So we are not troubled with Galaxy Entertainment Group's debt use. 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. To that end, you should be aware of the 1 warning sign we've spotted with Galaxy Entertainment Group .

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.