Would Sing Lee Software (Group) (HKG:8076) Be Better Off With Less Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Sing Lee Software (Group) Limited (HKG:8076) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Sing Lee Software (Group) Carry?

As you can see below, Sing Lee Software (Group) had CN¥30.7m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, it also had CN¥10.3m in cash, and so its net debt is CN¥20.3m.

How Healthy Is Sing Lee Software (Group)'s Balance Sheet?

The latest balance sheet data shows that Sing Lee Software (Group) had liabilities of CN¥10.1m due within a year, and liabilities of CN¥27.9m falling due after that. Offsetting this, it had CN¥10.3m in cash and CN¥18.2m in receivables that were due within 12 months. So it has liabilities totalling CN¥9.41m more than its cash and near-term receivables, combined.

Sing Lee Software (Group) has a market capitalization of CN¥28.7m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is Sing Lee Software (Group)'s earnings that will influence how the balance sheet holds up in the future. 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 Sing Lee Software (Group)

In the last year Sing Lee Software (Group) had a loss before interest and tax, and actually shrunk its revenue by 28%, to CN¥52m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Sing Lee Software (Group)'s revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping CN¥8.4m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CN¥1.4m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example, we've discovered 2 warning signs for Sing Lee Software (Group) (1 is a bit concerning!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.