These 4 Measures Indicate That Brightstar Technology Group (HKG:8446) Is Using Debt Reasonably Well

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. We can see that Brightstar Technology Group Co., Ltd. (HKG:8446) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Brightstar Technology Group's Net Debt?

As you can see below, at the end of June 2025, Brightstar Technology Group had HK$40.3m of debt, up from HK$5.08m a year ago. Click the image for more detail. But on the other hand it also has HK$97.1m in cash, leading to a HK$56.7m net cash position.

How Strong Is Brightstar Technology Group's Balance Sheet?

The latest balance sheet data shows that Brightstar Technology Group had liabilities of HK$178.3m due within a year, and liabilities of HK$5.95m falling due after that. On the other hand, it had cash of HK$97.1m and HK$60.3m worth of receivables due within a year. So its liabilities total HK$26.9m more than the combination of its cash and short-term receivables.

Since publicly traded Brightstar Technology Group shares are worth a total of HK$160.9m, it seems unlikely that this level of liabilities would be a major threat. 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, Brightstar Technology Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Brightstar Technology Group

It was also good to see that despite losing money on the EBIT line last year, Brightstar Technology Group turned things around in the last 12 months, delivering and EBIT of HK$36m. When analysing debt levels, the balance sheet is the obvious place to start. But it is Brightstar Technology 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While Brightstar Technology 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. Happily for any shareholders, Brightstar Technology Group actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While Brightstar Technology Group does have more liabilities than liquid assets, it also has net cash of HK$56.7m. And it impressed us with free cash flow of HK$145m, being 397% of its EBIT. So is Brightstar Technology Group's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Brightstar Technology Group that you should be aware of before investing here.

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.