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Forward Fashion (International) Holdings (HKG:2528) Has A Somewhat Strained Balance Sheet

Simply Wall St · 1d 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 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. We note that Forward Fashion (International) Holdings Company Limited (HKG:2528) 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 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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 Forward Fashion (International) Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that Forward Fashion (International) Holdings had HK$200.8m in debt in June 2025; about the same as the year before. However, it also had HK$103.8m in cash, and so its net debt is HK$96.9m.

debt-equity-history-analysis
SEHK:2528 Debt to Equity History December 10th 2025

A Look At Forward Fashion (International) Holdings' Liabilities

We can see from the most recent balance sheet that Forward Fashion (International) Holdings had liabilities of HK$310.5m falling due within a year, and liabilities of HK$272.1m due beyond that. Offsetting this, it had HK$103.8m in cash and HK$68.3m in receivables that were due within 12 months. So its liabilities total HK$410.5m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the HK$128.0m 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, Forward Fashion (International) Holdings would probably need a major re-capitalization if its creditors were to demand repayment.

View our latest analysis for Forward Fashion (International) Holdings

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

While Forward Fashion (International) Holdings has a quite reasonable net debt to EBITDA multiple of 2.3, its interest cover seems weak, at 0.18. In large part that's it has so much depreciation and amortisation. While companies often boast that these charges are non-cash, most such businesses will therefore require ongoing investment (that is not expensed.) In any case, it's safe to say the company has meaningful debt. Notably, Forward Fashion (International) Holdings made a loss at the EBIT level, last year, but improved that to positive EBIT of HK$2.4m in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Forward Fashion (International) 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Over the last year, Forward Fashion (International) Holdings actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

On the face of it, Forward Fashion (International) Holdings's interest cover left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. Looking at the bigger picture, it seems clear to us that Forward Fashion (International) Holdings's use of debt is creating risks for the company. If everything goes well that may pay off but the downside of this debt is a greater risk of permanent losses. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Forward Fashion (International) Holdings .

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.