We Think Yadea Group Holdings (HKG:1585) Can Stay On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Yadea Group Holdings Ltd. (HKG:1585) does carry debt. But the more important question is: how much risk is that debt creating?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Yadea Group Holdings's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Yadea Group Holdings had debt of CN¥3.14b, up from CN¥1.81b in one year. However, it does have CN¥13.4b in cash offsetting this, leading to net cash of CN¥10.3b.

How Healthy Is Yadea Group Holdings' Balance Sheet?

According to the last reported balance sheet, Yadea Group Holdings had liabilities of CN¥20.3b due within 12 months, and liabilities of CN¥842.7m due beyond 12 months. On the other hand, it had cash of CN¥13.4b and CN¥615.9m worth of receivables due within a year. So it has liabilities totalling CN¥7.14b more than its cash and near-term receivables, combined.

Of course, Yadea Group Holdings has a market capitalization of CN¥39.0b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Yadea Group Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Yadea Group Holdings

But the bad news is that Yadea Group Holdings has seen its EBIT plunge 17% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. 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 Yadea Group Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Yadea Group 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. Over the last three years, Yadea Group Holdings actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While Yadea Group Holdings does have more liabilities than liquid assets, it also has net cash of CN¥10.3b. The cherry on top was that in converted 101% of that EBIT to free cash flow, bringing in CN¥4.5b. So we don't have any problem with Yadea Group Holdings's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Yadea Group Holdings, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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.