Q Technology (Group) (HKG:1478) Seems To Use Debt Rather Sparingly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. As with many other companies Q Technology (Group) Company Limited (HKG:1478) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Q Technology (Group)'s Debt?

You can click the graphic below for the historical numbers, but it shows that Q Technology (Group) had CN¥2.91b of debt in June 2025, down from CN¥4.14b, one year before. However, it does have CN¥3.78b in cash offsetting this, leading to net cash of CN¥871.6m.

A Look At Q Technology (Group)'s Liabilities

The latest balance sheet data shows that Q Technology (Group) had liabilities of CN¥9.66b due within a year, and liabilities of CN¥265.9m falling due after that. Offsetting this, it had CN¥3.78b in cash and CN¥4.69b in receivables that were due within 12 months. So its liabilities total CN¥1.46b more than the combination of its cash and short-term receivables.

Of course, Q Technology (Group) has a market capitalization of CN¥18.5b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Q Technology (Group) also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Q Technology (Group)

Better yet, Q Technology (Group) grew its EBIT by 216% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Q Technology (Group) can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Q Technology (Group) has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last two years, Q Technology (Group) actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Q Technology (Group)'s liabilities, but we can be reassured by the fact it has has net cash of CN¥871.6m. And it impressed us with free cash flow of CN¥965m, being 162% of its EBIT. So we don't think Q Technology (Group)'s use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Q Technology (Group)'s earnings per share history for free.

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.

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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.