Is Sunray Engineering Group (HKG:8616) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Sunray Engineering Group Limited (HKG:8616) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Sunray Engineering Group Carry?

The image below, which you can click on for greater detail, shows that Sunray Engineering Group had debt of HK$18.1m at the end of September 2025, a reduction from HK$21.4m over a year. However, it does have HK$39.0m in cash offsetting this, leading to net cash of HK$20.9m.

How Healthy Is Sunray Engineering Group's Balance Sheet?

According to the last reported balance sheet, Sunray Engineering Group had liabilities of HK$67.7m due within 12 months, and liabilities of HK$1.81m due beyond 12 months. Offsetting these obligations, it had cash of HK$39.0m as well as receivables valued at HK$142.3m due within 12 months. So it actually has HK$111.8m more liquid assets than total liabilities.

This surplus strongly suggests that Sunray Engineering Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Sunray Engineering Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Sunray Engineering Group 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.

See our latest analysis for Sunray Engineering Group

In the last year Sunray Engineering Group wasn't profitable at an EBIT level, but managed to grow its revenue by 8.5%, to HK$171m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Sunray Engineering Group?

While Sunray Engineering Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow HK$308k. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The next few years will be important as the business matures. 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. We've identified 2 warning signs with Sunray Engineering Group , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.