Does Hop Fung Group Holdings (HKG:2320) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Hop Fung Group Holdings Limited (HKG:2320) makes use of debt. 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Hop Fung Group Holdings's Debt?

As you can see below, Hop Fung Group Holdings had HK$91.9m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has HK$24.6m in cash leading to net debt of about HK$67.3m.

A Look At Hop Fung Group Holdings' Liabilities

According to the last reported balance sheet, Hop Fung Group Holdings had liabilities of HK$67.9m due within 12 months, and liabilities of HK$92.9m due beyond 12 months. Offsetting this, it had HK$24.6m in cash and HK$30.8m in receivables that were due within 12 months. So it has liabilities totalling HK$105.5m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the HK$69.5m 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. At the end of the day, Hop Fung Group Holdings would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Hop Fung Group Holdings'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.

Check out our latest analysis for Hop Fung Group Holdings

Over 12 months, Hop Fung Group Holdings made a loss at the EBIT level, and saw its revenue drop to HK$173m, which is a fall of 24%. That makes us nervous, to say the least.

Caveat Emptor

While Hop Fung Group Holdings's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable HK$88m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through HK$29m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Hop Fung Group Holdings , 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.

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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.