Is Synertone Communication (HKG:1613) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, Synertone Communication Corporation (HKG:1613) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Synertone Communication's Net Debt?

The image below, which you can click on for greater detail, shows that Synertone Communication had debt of HK$43.0m at the end of March 2025, a reduction from HK$50.7m over a year. However, its balance sheet shows it holds HK$44.6m in cash, so it actually has HK$1.60m net cash.

How Healthy Is Synertone Communication's Balance Sheet?

According to the balance sheet data, Synertone Communication had liabilities of HK$113.7m due within 12 months, but no longer term liabilities. On the other hand, it had cash of HK$44.6m and HK$58.2m worth of receivables due within a year. So it has liabilities totalling HK$10.9m more than its cash and near-term receivables, combined.

Of course, Synertone Communication has a market capitalization of HK$112.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Synertone Communication also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Synertone Communication'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 Synertone Communication

In the last year Synertone Communication wasn't profitable at an EBIT level, but managed to grow its revenue by 87%, to HK$117m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Synertone Communication?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Synertone Communication had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through HK$39m of cash and made a loss of HK$32m. But at least it has HK$1.60m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Synertone Communication may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. For example Synertone Communication has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.

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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.