WEBULL

Health Check: How Prudently Does China Sinostar Group (HKG:485) Use Debt?

Simply Wall St · 3d ago

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that China Sinostar Group Company Limited (HKG:485) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt Dangerous?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 China Sinostar Group's Debt?

The chart below, which you can click on for greater detail, shows that China Sinostar Group had HK$26.9m in debt in September 2025; about the same as the year before. However, its balance sheet shows it holds HK$36.2m in cash, so it actually has HK$9.24m net cash.

debt-equity-history-analysis
SEHK:485 Debt to Equity History December 2nd 2025

How Healthy Is China Sinostar Group's Balance Sheet?

According to the balance sheet data, China Sinostar Group had liabilities of HK$64.3m due within 12 months, but no longer term liabilities. Offsetting this, it had HK$36.2m in cash and HK$10.2m in receivables that were due within 12 months. So its liabilities total HK$17.9m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because China Sinostar Group is worth HK$64.9m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, China Sinostar Group also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is China Sinostar 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.

See our latest analysis for China Sinostar Group

In the last year China Sinostar Group had a loss before interest and tax, and actually shrunk its revenue by 18%, to HK$20m. We would much prefer see growth.

So How Risky Is China Sinostar Group?

Although China Sinostar Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of HK$4.0m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 instance, we've identified 4 warning signs for China Sinostar Group (3 can't be ignored) you should be aware of.

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.