We Think Allied Sustainability and Environmental Consultants Group (HKG:8320) Has A Fair Chunk Of 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. As with many other companies Allied Sustainability and Environmental Consultants Group Limited (HKG:8320) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Allied Sustainability and Environmental Consultants Group Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Allied Sustainability and Environmental Consultants Group had debt of HK$19.0m, up from HK$16.5m in one year. However, because it has a cash reserve of HK$11.9m, its net debt is less, at about HK$7.14m.

How Healthy Is Allied Sustainability and Environmental Consultants Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Allied Sustainability and Environmental Consultants Group had liabilities of HK$28.1m due within 12 months and liabilities of HK$5.05m due beyond that. Offsetting this, it had HK$11.9m in cash and HK$67.3m in receivables that were due within 12 months. So it can boast HK$46.0m more liquid assets than total liabilities.

This surplus strongly suggests that Allied Sustainability and Environmental Consultants Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. When analysing debt levels, the balance sheet is the obvious place to start. But it is Allied Sustainability and Environmental Consultants 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.

View our latest analysis for Allied Sustainability and Environmental Consultants Group

In the last year Allied Sustainability and Environmental Consultants Group had a loss before interest and tax, and actually shrunk its revenue by 8.5%, to HK$48m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Allied Sustainability and Environmental Consultants Group produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at HK$8.3m. That said, we're impressed with the strong balance sheet liquidity. That will give the company some time and space to grow and develop its business as need be. While the stock is probably a bit risky, there may be an opportunity if the business itself improves, allowing the company to stage a recovery. 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. For instance, we've identified 2 warning signs for Allied Sustainability and Environmental Consultants Group (1 can't be ignored) you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.