Is Wan Kei Group Holdings (HKG:1718) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, Wan Kei Group Holdings Limited (HKG:1718) does carry debt. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Wan Kei Group Holdings's Debt?

The image below, which you can click on for greater detail, shows that Wan Kei Group Holdings had debt of HK$169.2m at the end of September 2025, a reduction from HK$182.7m over a year. However, it does have HK$102.7m in cash offsetting this, leading to net debt of about HK$66.5m.

How Strong Is Wan Kei Group Holdings' Balance Sheet?

The latest balance sheet data shows that Wan Kei Group Holdings had liabilities of HK$225.6m due within a year, and liabilities of HK$4.23m falling due after that. Offsetting this, it had HK$102.7m in cash and HK$182.4m in receivables that were due within 12 months. So it actually has HK$55.3m more liquid assets than total liabilities.

This excess liquidity is a great indication that Wan Kei Group Holdings' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. 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 Wan Kei Group Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Wan Kei Group Holdings

In the last year Wan Kei Group Holdings's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Wan Kei Group Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable HK$42m at the EBIT level. 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example Wan Kei Group Holdings has 4 warning signs (and 3 which are significant) we think 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.

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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.