These 4 Measures Indicate That Nexteer Automotive Group (HKG:1316) Is Using Debt Safely

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Nexteer Automotive Group Limited (HKG:1316) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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

What Is Nexteer Automotive Group's Debt?

The chart below, which you can click on for greater detail, shows that Nexteer Automotive Group had US$48.7m in debt in June 2025; about the same as the year before. But on the other hand it also has US$459.2m in cash, leading to a US$410.5m net cash position.

How Healthy Is Nexteer Automotive Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nexteer Automotive Group had liabilities of US$1.19b due within 12 months and liabilities of US$323.2m due beyond that. Offsetting these obligations, it had cash of US$459.2m as well as receivables valued at US$1.04b due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Nexteer Automotive Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$2.45b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Nexteer Automotive Group boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Nexteer Automotive Group

On top of that, Nexteer Automotive Group grew its EBIT by 80% 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 it is future earnings, more than anything, that will determine Nexteer Automotive Group'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, a company can only pay off debt with cold hard cash, not accounting profits. Nexteer Automotive Group 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. Over the last three years, Nexteer Automotive Group recorded free cash flow worth a fulsome 80% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about Nexteer Automotive Group's liabilities, but we can be reassured by the fact it has has net cash of US$410.5m. And it impressed us with free cash flow of US$194m, being 80% of its EBIT. So is Nexteer Automotive Group'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 Nexteer Automotive Group'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.