Zhejiang HangKe Technology (SHSE:688006) Has A Pretty Healthy Balance Sheet

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, Zhejiang HangKe Technology Incorporated Company (SHSE:688006) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Zhejiang HangKe Technology

What Is Zhejiang HangKe Technology's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Zhejiang HangKe Technology had CN¥12.1m of debt, an increase on none, over one year. However, it does have CN¥2.83b in cash offsetting this, leading to net cash of CN¥2.81b.

How Healthy Is Zhejiang HangKe Technology's Balance Sheet?

The latest balance sheet data shows that Zhejiang HangKe Technology had liabilities of CN¥4.79b due within a year, and liabilities of CN¥35.1m falling due after that. Offsetting this, it had CN¥2.83b in cash and CN¥2.59b in receivables that were due within 12 months. So it can boast CN¥597.5m more liquid assets than total liabilities.

This surplus suggests that Zhejiang HangKe Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Zhejiang HangKe Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Zhejiang HangKe Technology grew its EBIT by 60% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Zhejiang HangKe Technology 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Zhejiang HangKe Technology 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, Zhejiang HangKe Technology actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case Zhejiang HangKe Technology has CN¥2.81b in net cash and a decent-looking balance sheet. And we liked the look of last year's 60% year-on-year EBIT growth. So is Zhejiang HangKe Technology's debt a risk? It doesn't seem so to us. 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 example - Zhejiang HangKe Technology has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.