Is Huazhang Technology Holding (HKG:1673) 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.' 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 Huazhang Technology Holding Limited (HKG:1673) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Huazhang Technology Holding's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Huazhang Technology Holding had CN¥111.2m of debt, an increase on CN¥86.4m, over one year. However, it does have CN¥218.3m in cash offsetting this, leading to net cash of CN¥107.1m.

How Strong Is Huazhang Technology Holding's Balance Sheet?

The latest balance sheet data shows that Huazhang Technology Holding had liabilities of CN¥521.8m due within a year, and liabilities of CN¥23.2m falling due after that. Offsetting these obligations, it had cash of CN¥218.3m as well as receivables valued at CN¥167.9m due within 12 months. So its liabilities total CN¥158.7m more than the combination of its cash and short-term receivables.

Huazhang Technology Holding has a market capitalization of CN¥361.6m, 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. Despite its noteworthy liabilities, Huazhang Technology Holding 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 it is Huazhang Technology Holding'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.

View our latest analysis for Huazhang Technology Holding

Over 12 months, Huazhang Technology Holding made a loss at the EBIT level, and saw its revenue drop to CN¥430m, which is a fall of 4.0%. We would much prefer see growth.

So How Risky Is Huazhang Technology Holding?

While Huazhang Technology Holding lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CN¥33m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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, we've discovered 1 warning sign for Huazhang Technology Holding that you should be aware of before investing here.

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.