We Think 1957 (Hospitality) (HKG:8495) Is Taking Some Risk With Its 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. We note that 1957 & Co. (Hospitality) Limited (HKG:8495) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does 1957 (Hospitality) Carry?

You can click the graphic below for the historical numbers, but it shows that 1957 (Hospitality) had HK$34.9m of debt in June 2025, down from HK$46.8m, one year before. However, its balance sheet shows it holds HK$42.0m in cash, so it actually has HK$7.04m net cash.

How Strong Is 1957 (Hospitality)'s Balance Sheet?

According to the last reported balance sheet, 1957 (Hospitality) had liabilities of HK$129.2m due within 12 months, and liabilities of HK$65.7m due beyond 12 months. Offsetting this, it had HK$42.0m in cash and HK$11.2m in receivables that were due within 12 months. So its liabilities total HK$141.7m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of HK$99.8m, we think shareholders really should watch 1957 (Hospitality)'s debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 1957 (Hospitality) boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

See our latest analysis for 1957 (Hospitality)

Importantly, 1957 (Hospitality)'s EBIT fell a jaw-dropping 25% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since 1957 (Hospitality) will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 1957 (Hospitality) may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, 1957 (Hospitality) actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although 1957 (Hospitality)'s balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of HK$7.04m. And it impressed us with free cash flow of HK$63m, being 504% of its EBIT. Despite its cash we think that 1957 (Hospitality) seems to struggle to grow its EBIT, so we are wary of the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with 1957 (Hospitality) .

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.

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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.