Is Solargiga Energy Holdings (HKG:757) Using Debt In A Risky Way?
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.' 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. As with many other companies Solargiga Energy Holdings Limited (HKG:757) makes use of debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Solargiga Energy Holdings's Net Debt?
The image below, which you can click on for greater detail, shows that Solargiga Energy Holdings had debt of CN¥820.8m at the end of June 2025, a reduction from CN¥1.08b over a year. However, it also had CN¥124.2m in cash, and so its net debt is CN¥696.5m.
How Strong Is Solargiga Energy Holdings' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Solargiga Energy Holdings had liabilities of CN¥1.95b due within 12 months and liabilities of CN¥223.2m due beyond that. On the other hand, it had cash of CN¥124.2m and CN¥1.38b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥667.2m.
This deficit casts a shadow over the CN¥331.4m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Solargiga Energy Holdings would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Solargiga Energy Holdings 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 Solargiga Energy Holdings
In the last year Solargiga Energy Holdings had a loss before interest and tax, and actually shrunk its revenue by 44%, to CN¥3.0b. To be frank that doesn't bode well.
Caveat Emptor
Not only did Solargiga Energy Holdings'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¥186m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of CN¥235m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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. Case in point: We've spotted 3 warning signs for Solargiga Energy Holdings you should be aware of, and 1 of them is a bit concerning.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.