Is Grand Field Group Holdings (HKG:115) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Grand Field Group Holdings Limited (HKG:115) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Grand Field Group Holdings Carry?

The image below, which you can click on for greater detail, shows that Grand Field Group Holdings had debt of HK$690.9m at the end of December 2024, a reduction from HK$733.7m over a year. However, it does have HK$44.2m in cash offsetting this, leading to net debt of about HK$646.7m.

A Look At Grand Field Group Holdings' Liabilities

We can see from the most recent balance sheet that Grand Field Group Holdings had liabilities of HK$884.7m falling due within a year, and liabilities of HK$527.1m due beyond that. Offsetting this, it had HK$44.2m in cash and HK$57.2m in receivables that were due within 12 months. So it has liabilities totalling HK$1.31b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the HK$36.1m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Grand Field Group Holdings would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Grand Field Group Holdings will need earnings to service that debt. 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.

View our latest analysis for Grand Field Group Holdings

In the last year Grand Field Group Holdings had a loss before interest and tax, and actually shrunk its revenue by 11%, to HK$236m. We would much prefer see growth.

Caveat Emptor

While Grand Field 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$145m at the EBIT level. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost HK$251m in the last year. So we think buying this stock is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Grand Field Group Holdings that you should be aware of.

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.