Health Check: How Prudently Does SANVO Fine Chemicals Group (HKG:301) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies SANVO Fine Chemicals Group Limited (HKG:301) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is SANVO Fine Chemicals Group's Debt?

You can click the graphic below for the historical numbers, but it shows that SANVO Fine Chemicals Group had CN¥255.1m of debt in June 2025, down from CN¥272.8m, one year before. On the flip side, it has CN¥49.0m in cash leading to net debt of about CN¥206.1m.

How Healthy Is SANVO Fine Chemicals Group's Balance Sheet?

According to the last reported balance sheet, SANVO Fine Chemicals Group had liabilities of CN¥680.5m due within 12 months, and liabilities of CN¥15.6m due beyond 12 months. On the other hand, it had cash of CN¥49.0m and CN¥125.9m worth of receivables due within a year. So it has liabilities totalling CN¥521.3m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of CN¥564.0m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But it is SANVO Fine Chemicals Group's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for SANVO Fine Chemicals Group

Over 12 months, SANVO Fine Chemicals Group saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months SANVO Fine Chemicals Group produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥17m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of CN¥32m into a profit. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 5 warning signs for SANVO Fine Chemicals Group (1 is a bit unpleasant) you should be aware of.

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.