Health Check: How Prudently Does Ko Yo Chemical (Group) (HKG:827) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Ko Yo Chemical (Group) Limited (HKG:827) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. 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.

How Much Debt Does Ko Yo Chemical (Group) Carry?

As you can see below, Ko Yo Chemical (Group) had CN¥2.81b of debt at June 2025, down from CN¥3.25b a year prior. And it doesn't have much cash, so its net debt is about the same.

How Strong Is Ko Yo Chemical (Group)'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ko Yo Chemical (Group) had liabilities of CN¥3.70b due within 12 months and liabilities of CN¥994.2m due beyond that. Offsetting these obligations, it had cash of CN¥29.0m as well as receivables valued at CN¥156.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥4.51b.

The deficiency here weighs heavily on the CN¥193.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Ko Yo Chemical (Group) would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Ko Yo Chemical (Group)'s earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for Ko Yo Chemical (Group)

Over 12 months, Ko Yo Chemical (Group) made a loss at the EBIT level, and saw its revenue drop to CN¥2.4b, which is a fall of 17%. We would much prefer see growth.

Caveat Emptor

While Ko Yo Chemical (Group)'s falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CN¥303m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the fact is that it incinerated CN¥88m of cash in the last twelve months, and has precious few liquid assets in comparison to its liabilities. So is this a high risk stock? We think so, and we'd avoid it. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Ko Yo Chemical (Group) is showing 4 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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.