Here's Why Shinelong Automotive Lightweight Application (HKG:1930) Can Manage Its Debt Responsibly

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. As with many other companies Shinelong Automotive Lightweight Application Limited (HKG:1930) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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 Shinelong Automotive Lightweight Application's Net Debt?

The image below, which you can click on for greater detail, shows that Shinelong Automotive Lightweight Application had debt of CN¥13.4m at the end of June 2025, a reduction from CN¥20.4m over a year. However, it does have CN¥40.0m in cash offsetting this, leading to net cash of CN¥26.7m.

How Healthy Is Shinelong Automotive Lightweight Application's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shinelong Automotive Lightweight Application had liabilities of CN¥350.7m due within 12 months and liabilities of CN¥5.15m due beyond that. Offsetting these obligations, it had cash of CN¥40.0m as well as receivables valued at CN¥94.1m due within 12 months. So it has liabilities totalling CN¥221.7m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of CN¥239.2m, so it does suggest shareholders should keep an eye on Shinelong Automotive Lightweight Application's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. While it does have liabilities worth noting, Shinelong Automotive Lightweight Application also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Shinelong Automotive Lightweight Application

In addition to that, we're happy to report that Shinelong Automotive Lightweight Application has boosted its EBIT by 64%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Shinelong Automotive Lightweight Application will need earnings to service that debt. 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. Shinelong Automotive Lightweight Application 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, Shinelong Automotive Lightweight Application saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While Shinelong Automotive Lightweight Application does have more liabilities than liquid assets, it also has net cash of CN¥26.7m. And it impressed us with its EBIT growth of 64% over the last year. So we are not troubled with Shinelong Automotive Lightweight Application's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Shinelong Automotive Lightweight Application has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.