Plover Bay Technologies (HKG:1523) Could Easily Take On More Debt

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.' 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. As with many other companies Plover Bay Technologies Limited (HKG:1523) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

How Much Debt Does Plover Bay Technologies Carry?

As you can see below, Plover Bay Technologies had US$3.09m of debt at June 2025, down from US$4.30m a year prior. But on the other hand it also has US$55.7m in cash, leading to a US$52.6m net cash position.

A Look At Plover Bay Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that Plover Bay Technologies had liabilities of US$40.2m due within 12 months and liabilities of US$15.4m due beyond that. On the other hand, it had cash of US$55.7m and US$25.9m worth of receivables due within a year. So it actually has US$26.0m more liquid assets than total liabilities.

This surplus suggests that Plover Bay Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Plover Bay Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Plover Bay Technologies

And we also note warmly that Plover Bay Technologies grew its EBIT by 18% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Plover Bay Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Plover Bay Technologies 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 three years, Plover Bay Technologies actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Plover Bay Technologies has US$52.6m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$45m, being 108% of its EBIT. So we don't think Plover Bay Technologies's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Plover Bay Technologies that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.