Is Eco-Tek Holdings (HKG:8169) Weighed On By Its Debt Load?

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.' 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 Eco-Tek Holdings Limited (HKG:8169) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Eco-Tek Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that Eco-Tek Holdings had HK$12.0m of debt in April 2025, down from HK$13.2m, one year before. But it also has HK$42.8m in cash to offset that, meaning it has HK$30.9m net cash.

How Strong Is Eco-Tek Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Eco-Tek Holdings had liabilities of HK$46.8m due within 12 months and liabilities of HK$11.1m due beyond that. Offsetting these obligations, it had cash of HK$42.8m as well as receivables valued at HK$29.5m due within 12 months. So it actually has HK$14.5m more liquid assets than total liabilities.

This excess liquidity is a great indication that Eco-Tek Holdings' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Eco-Tek Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Eco-Tek Holdings 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.

View our latest analysis for Eco-Tek Holdings

Over 12 months, Eco-Tek Holdings made a loss at the EBIT level, and saw its revenue drop to HK$86m, which is a fall of 21%. That makes us nervous, to say the least.

So How Risky Is Eco-Tek Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Eco-Tek Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of HK$7.0m and booked a HK$3.6m accounting loss. With only HK$30.9m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Eco-Tek Holdings is showing 1 warning sign in our investment analysis , you should know about...

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.