We Think Metasurface Technologies Holdings (HKG:8637) Can Stay On Top Of Its Debt

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.' 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 can see that Metasurface Technologies Holdings Limited (HKG:8637) does use debt in its business. But should shareholders be worried about its use of debt?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Metasurface Technologies Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Metasurface Technologies Holdings had debt of S$2.33m at the end of June 2025, a reduction from S$3.53m over a year. But it also has S$20.1m in cash to offset that, meaning it has S$17.8m net cash.

How Strong Is Metasurface Technologies Holdings' Balance Sheet?

The latest balance sheet data shows that Metasurface Technologies Holdings had liabilities of S$12.9m due within a year, and liabilities of S$23.6m falling due after that. Offsetting these obligations, it had cash of S$20.1m as well as receivables valued at S$10.2m due within 12 months. So it has liabilities totalling S$6.18m more than its cash and near-term receivables, combined.

Of course, Metasurface Technologies Holdings has a market capitalization of S$42.5m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Metasurface Technologies Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Metasurface Technologies Holdings

Unfortunately, Metasurface Technologies Holdings saw its EBIT slide 8.1% in the last twelve months. If that earnings trend continues then its debt load will grow heavy like the heart of a polar bear watching its sole cub. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Metasurface Technologies Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Metasurface Technologies Holdings 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, Metasurface Technologies Holdings actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While Metasurface Technologies Holdings does have more liabilities than liquid assets, it also has net cash of S$17.8m. The cherry on top was that in converted 118% of that EBIT to free cash flow, bringing in S$2.4m. So we don't have any problem with Metasurface Technologies Holdings's use of debt. 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 2 warning signs for Metasurface Technologies Holdings that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.