XtalPi Holdings (HKG:2228) Is Using Debt Safely

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. Importantly, XtalPi Holdings Limited (HKG:2228) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does XtalPi Holdings Carry?

As you can see below, at the end of June 2025, XtalPi Holdings had CN¥280.9m of debt, up from CN¥64.9m a year ago. Click the image for more detail. But it also has CN¥5.31b in cash to offset that, meaning it has CN¥5.02b net cash.

How Strong Is XtalPi Holdings' Balance Sheet?

According to the last reported balance sheet, XtalPi Holdings had liabilities of CN¥615.8m due within 12 months, and liabilities of CN¥73.7m due beyond 12 months. On the other hand, it had cash of CN¥5.31b and CN¥500.6m worth of receivables due within a year. So it can boast CN¥5.12b more liquid assets than total liabilities.

This surplus suggests that XtalPi Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that XtalPi Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine XtalPi Holdings'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.

Check out our latest analysis for XtalPi Holdings

Over 12 months, XtalPi Holdings reported revenue of CN¥681m, which is a gain of 245%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is XtalPi Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months XtalPi Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CN¥483m and booked a CN¥197m accounting loss. But the saving grace is the CN¥5.02b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, XtalPi Holdings's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 2 warning signs we've spotted with XtalPi Holdings .

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.