Does Wang On Group (HKG:1222) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Wang On Group Limited (HKG:1222) does use debt in its business. But the more important question is: how much risk is that debt creating?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Wang On Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Wang On Group had HK$4.39b of debt in September 2025, down from HK$5.31b, one year before. On the flip side, it has HK$772.4m in cash leading to net debt of about HK$3.61b.

How Healthy Is Wang On Group's Balance Sheet?

According to the last reported balance sheet, Wang On Group had liabilities of HK$2.39b due within 12 months, and liabilities of HK$4.14b due beyond 12 months. Offsetting these obligations, it had cash of HK$772.4m as well as receivables valued at HK$167.2m due within 12 months. So it has liabilities totalling HK$5.59b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the HK$396.7m 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'd watch its balance sheet closely, without a doubt. At the end of the day, Wang On Group 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 you can't view debt in total isolation; since Wang On Group 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.

Check out our latest analysis for Wang On Group

In the last year Wang On Group wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to HK$2.7b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Wang On Group still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping HK$596m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. 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$1.4b 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. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Wang On Group (including 1 which is a bit unpleasant) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.