Is Galaxy Entertainment Group (HKG:27) A Risky Investment?

Warren Buffett famously said, '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. We can see that Galaxy Entertainment Group Limited (HKG:27) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Galaxy Entertainment Group

How Much Debt Does Galaxy Entertainment Group Carry?

As you can see below, at the end of December 2022, Galaxy Entertainment Group had HK$7.58b of debt, up from HK$6.48b a year ago. Click the image for more detail. However, its balance sheet shows it holds HK$16.3b in cash, so it actually has HK$8.77b net cash.

How Strong Is Galaxy Entertainment Group's Balance Sheet?

The latest balance sheet data shows that Galaxy Entertainment Group had liabilities of HK$15.3b due within a year, and liabilities of HK$1.20b falling due after that. Offsetting this, it had HK$16.3b in cash and HK$1.23b in receivables that were due within 12 months. So it can boast HK$1.08b more liquid assets than total liabilities.

Having regard to Galaxy Entertainment Group's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the HK$225.6b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Galaxy Entertainment Group boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Galaxy Entertainment Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Galaxy Entertainment Group had a loss before interest and tax, and actually shrunk its revenue by 42%, to HK$11b. That makes us nervous, to say the least.

So How Risky Is Galaxy Entertainment Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Galaxy Entertainment Group had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of HK$8.7b and booked a HK$3.4b accounting loss. Given it only has net cash of HK$8.77b, the company may need to raise more capital if it doesn't reach break-even soon. 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. For riskier companies like Galaxy Entertainment Group I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.