Acotec Scientific Holdings (HKG:6669) Could Easily Take On More Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Acotec Scientific Holdings Limited (HKG:6669) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Acotec Scientific Holdings Carry?

The image below, which you can click on for greater detail, shows that Acotec Scientific Holdings had debt of CN¥49.0m at the end of June 2025, a reduction from CN¥55.0m over a year. However, its balance sheet shows it holds CN¥995.4m in cash, so it actually has CN¥946.4m net cash.

How Strong Is Acotec Scientific Holdings' Balance Sheet?

According to the last reported balance sheet, Acotec Scientific Holdings had liabilities of CN¥217.3m due within 12 months, and liabilities of CN¥166.7m due beyond 12 months. Offsetting this, it had CN¥995.4m in cash and CN¥188.1m in receivables that were due within 12 months. So it can boast CN¥799.5m more liquid assets than total liabilities.

It's good to see that Acotec Scientific Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Acotec Scientific Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Acotec Scientific Holdings

Even more impressive was the fact that Acotec Scientific Holdings grew its EBIT by 100% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Acotec Scientific Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Acotec Scientific Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Considering the last three years, Acotec Scientific Holdings actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While it is always sensible to investigate a company's debt, in this case Acotec Scientific Holdings has CN¥946.4m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 100% over the last year. So is Acotec Scientific Holdings's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Acotec Scientific Holdings's earnings per share history for free.

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.

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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.