Here's Why Affluent Foundation Holdings (HKG:1757) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Affluent Foundation Holdings Limited (HKG:1757) 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.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Affluent Foundation Holdings's Net Debt?

As you can see below, Affluent Foundation Holdings had HK$35.8m of debt at March 2025, down from HK$39.1m a year prior. However, it does have HK$5.75m in cash offsetting this, leading to net debt of about HK$30.1m.

How Healthy Is Affluent Foundation Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Affluent Foundation Holdings had liabilities of HK$127.9m due within 12 months and liabilities of HK$4.09m due beyond that. Offsetting this, it had HK$5.75m in cash and HK$189.7m in receivables that were due within 12 months. So it can boast HK$63.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Affluent Foundation Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. There's no doubt that we learn most about debt from the balance sheet. But it is Affluent Foundation Holdings'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.

View our latest analysis for Affluent Foundation Holdings

In the last year Affluent Foundation Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to HK$241m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Affluent Foundation Holdings still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost HK$11m at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. And on top of that, it booked free cash flow of HK$11m and profit of HK$1.1m over the last year. So it seems too risky for our taste. 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 Affluent Foundation Holdings is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.