Global Digital Creations Holdings (HKG:8271) Has Debt But No Earnings; Should You Worry?

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. As with many other companies Global Digital Creations Holdings Limited (HKG:8271) 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?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Global Digital Creations Holdings Carry?

As you can see below, at the end of June 2025, Global Digital Creations Holdings had HK$20.7m of debt, up from none a year ago. Click the image for more detail. However, it does have HK$203.1m in cash offsetting this, leading to net cash of HK$182.4m.

How Healthy Is Global Digital Creations Holdings' Balance Sheet?

According to the last reported balance sheet, Global Digital Creations Holdings had liabilities of HK$75.2m due within 12 months, and liabilities of HK$20.7m due beyond 12 months. Offsetting this, it had HK$203.1m in cash and HK$4.54m in receivables that were due within 12 months. So it can boast HK$111.7m more liquid assets than total liabilities.

This excess liquidity is a great indication that Global Digital Creations 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. Simply put, the fact that Global Digital Creations Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Global Digital Creations 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.

Check out our latest analysis for Global Digital Creations Holdings

In the last year Global Digital Creations Holdings had a loss before interest and tax, and actually shrunk its revenue by 19%, to HK$63m. We would much prefer see growth.

So How Risky Is Global Digital Creations 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 Global Digital Creations 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$7.1m and booked a HK$40m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of HK$182.4m. That means it could keep spending at its current rate for more than two years. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Global Digital Creations Holdings (at least 1 which is a bit unpleasant) , 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.