Is New City Development Group (HKG:456) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, New City Development Group Limited (HKG:456) does carry debt. But the more important question is: how much risk is that debt creating?

We've discovered 4 warning signs about New City Development Group. View them for free.

What Risk Does Debt Bring?

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. 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. 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 New City Development Group Carry?

The chart below, which you can click on for greater detail, shows that New City Development Group had HK$759.2m in debt in December 2024; about the same as the year before. However, it does have HK$70.3m in cash offsetting this, leading to net debt of about HK$688.9m.

How Healthy Is New City Development Group's Balance Sheet?

The latest balance sheet data shows that New City Development Group had liabilities of HK$667.0m due within a year, and liabilities of HK$669.4m falling due after that. Offsetting these obligations, it had cash of HK$70.3m as well as receivables valued at HK$194.0k due within 12 months. So its liabilities total HK$1.27b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the HK$58.1m 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. After all, New City Development Group would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is New City Development 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.

See our latest analysis for New City Development Group

Given it has no significant operating revenue at the moment, shareholders will be hoping New City Development Group can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Not only did New City Development Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable HK$112m at the EBIT level. 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. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost HK$128m 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. To that end, you should learn about the 4 warning signs we've spotted with New City Development Group (including 2 which are significant) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.