Is Hang Tai Yue Group Holdings (HKG:8081) A Risky Investment?

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. We note that Hang Tai Yue Group Holdings Limited (HKG:8081) does have debt on its balance sheet. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Hang Tai Yue Group Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Hang Tai Yue Group Holdings had debt of HK$102.4m, up from HK$83.1m in one year. However, because it has a cash reserve of HK$32.9m, its net debt is less, at about HK$69.5m.

A Look At Hang Tai Yue Group Holdings' Liabilities

The latest balance sheet data shows that Hang Tai Yue Group Holdings had liabilities of HK$139.3m due within a year, and liabilities of HK$4.88m falling due after that. Offsetting this, it had HK$32.9m in cash and HK$45.9m in receivables that were due within 12 months. So it has liabilities totalling HK$65.4m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of HK$77.3m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is Hang Tai Yue Group Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Hang Tai Yue Group Holdings

Over 12 months, Hang Tai Yue Group Holdings made a loss at the EBIT level, and saw its revenue drop to HK$65m, which is a fall of 5.2%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Hang Tai Yue Group Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable HK$27m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled HK$32m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very 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. We've identified 3 warning signs with Hang Tai Yue Group Holdings (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

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.