Is China HK Power Smart Energy Group (HKG:931) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that China HK Power Smart Energy Group Limited (HKG:931) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does China HK Power Smart Energy Group Carry?

You can click the graphic below for the historical numbers, but it shows that China HK Power Smart Energy Group had HK$647.4m of debt in March 2025, down from HK$774.0m, one year before. However, because it has a cash reserve of HK$92.4m, its net debt is less, at about HK$555.0m.

How Healthy Is China HK Power Smart Energy Group's Balance Sheet?

We can see from the most recent balance sheet that China HK Power Smart Energy Group had liabilities of HK$935.5m falling due within a year, and liabilities of HK$529.5m due beyond that. Offsetting this, it had HK$92.4m in cash and HK$312.1m in receivables that were due within 12 months. So it has liabilities totalling HK$1.06b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since China HK Power Smart Energy Group has a market capitalization of HK$1.88b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since China HK Power Smart Energy Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for China HK Power Smart Energy Group

Over 12 months, China HK Power Smart Energy Group reported revenue of HK$713m, which is a gain of 57%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, China HK Power Smart Energy Group still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at HK$56m. 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. We would feel better if it turned its trailing twelve month loss of HK$106m into a profit. So to be blunt we do think it 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. For example - China HK Power Smart Energy Group has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.