We Think Powerwin Tech Group (HKG:2405) 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 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. Importantly, Powerwin Tech Group Limited (HKG:2405) does carry debt. But the real question is whether this debt is making the company risky.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Powerwin Tech Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Powerwin Tech Group had US$14.9m of debt in June 2025, down from US$99.1m, one year before. However, its balance sheet shows it holds US$16.3m in cash, so it actually has US$1.34m net cash.

A Look At Powerwin Tech Group's Liabilities

We can see from the most recent balance sheet that Powerwin Tech Group had liabilities of US$181.3m falling due within a year, and liabilities of US$2.16m due beyond that. Offsetting these obligations, it had cash of US$16.3m as well as receivables valued at US$183.4m due within 12 months. So it actually has US$16.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Powerwin Tech Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Powerwin Tech Group boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Powerwin Tech Group

Importantly, Powerwin Tech Group's EBIT fell a jaw-dropping 93% in the last twelve months. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. There's no doubt that we learn most about debt from the balance sheet. But it is Powerwin Tech Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Powerwin Tech Group 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 most recent three years, Powerwin Tech Group recorded free cash flow worth 61% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Powerwin Tech Group has net cash of US$1.34m, as well as more liquid assets than liabilities. So we are not troubled with Powerwin Tech Group's debt use. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Powerwin Tech Group you should know about.

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.