Does Huaxia Eye Hospital GroupLtd (SZSE:301267) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Huaxia Eye Hospital Group Co.,Ltd. (SZSE:301267) makes use of debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Huaxia Eye Hospital GroupLtd

How Much Debt Does Huaxia Eye Hospital GroupLtd Carry?

The chart below, which you can click on for greater detail, shows that Huaxia Eye Hospital GroupLtd had CN¥25.1m in debt in March 2024; about the same as the year before. However, its balance sheet shows it holds CN¥4.10b in cash, so it actually has CN¥4.07b net cash.

How Strong Is Huaxia Eye Hospital GroupLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Huaxia Eye Hospital GroupLtd had liabilities of CN¥974.6m due within 12 months and liabilities of CN¥756.2m due beyond that. Offsetting this, it had CN¥4.10b in cash and CN¥441.3m in receivables that were due within 12 months. So it actually has CN¥2.81b more liquid assets than total liabilities.

This excess liquidity suggests that Huaxia Eye Hospital GroupLtd is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Huaxia Eye Hospital GroupLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Huaxia Eye Hospital GroupLtd grew its EBIT at 14% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Huaxia Eye Hospital GroupLtd's ability to maintain a healthy balance sheet going forward. 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. While Huaxia Eye Hospital GroupLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Huaxia Eye Hospital GroupLtd produced sturdy free cash flow equating to 73% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Huaxia Eye Hospital GroupLtd has CN¥4.07b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥405m, being 73% of its EBIT. So is Huaxia Eye Hospital GroupLtd'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 Huaxia Eye Hospital GroupLtd's earnings per share history for free.

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.

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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.