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.' 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. Importantly, Galaxy Entertainment Group Limited (HKG:27) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Galaxy Entertainment Group

How Much Debt Does Galaxy Entertainment Group Carry?

As you can see below, Galaxy Entertainment Group had HK$8.79b of debt at June 2022, down from HK$11.5b a year prior. However, it does have HK$19.4b in cash offsetting this, leading to net cash of HK$10.6b.

A Look At Galaxy Entertainment Group's Liabilities

We can see from the most recent balance sheet that Galaxy Entertainment Group had liabilities of HK$16.4b falling due within a year, and liabilities of HK$1.10b due beyond that. Offsetting these obligations, it had cash of HK$19.4b as well as receivables valued at HK$1.29b due within 12 months. So it actually has HK$3.18b more liquid assets than total liabilities.

Having regard to Galaxy Entertainment Group's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the HK$205.3b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Galaxy Entertainment Group 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 ultimately the future profitability of the business will decide if Galaxy Entertainment Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Galaxy Entertainment Group made a loss at the EBIT level, and saw its revenue drop to HK$16b, which is a fall of 9.8%. We would much prefer see growth.

So How Risky Is Galaxy Entertainment Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Galaxy Entertainment Group lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through HK$8.7b of cash and made a loss of HK$471m. Given it only has net cash of HK$10.6b, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. For riskier companies like Galaxy Entertainment Group I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.