Here's Why Antong Holdings (SHSE:600179) Can Manage Its Debt Responsibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Antong Holdings Co., Ltd. (SHSE:600179) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. 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 Antong Holdings

How Much Debt Does Antong Holdings Carry?

As you can see below, at the end of March 2024, Antong Holdings had CN¥1.29b of debt, up from CN¥756.0m a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥4.41b in cash, so it actually has CN¥3.12b net cash.

A Look At Antong Holdings' Liabilities

We can see from the most recent balance sheet that Antong Holdings had liabilities of CN¥2.76b falling due within a year, and liabilities of CN¥1.06b due beyond that. Offsetting these obligations, it had cash of CN¥4.41b as well as receivables valued at CN¥584.3m due within 12 months. So it can boast CN¥1.17b more liquid assets than total liabilities.

This short term liquidity is a sign that Antong Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Antong Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

The modesty of its debt load may become crucial for Antong Holdings if management cannot prevent a repeat of the 81% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But it is Antong Holdings's earnings that will influence how the balance sheet holds up in the future. 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, a company can only pay off debt with cold hard cash, not accounting profits. Antong 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. Happily for any shareholders, Antong Holdings actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Antong Holdings has CN¥3.12b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CN¥724m, being 126% of its EBIT. So we don't have any problem with Antong Holdings's use of debt. 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, we've discovered 2 warning signs for Antong Holdings that you should be aware of before investing here.

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.