We Think Zhuzhou CRRC Times Electric (HKG:3898) Can Manage Its Debt With Ease

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Zhuzhou CRRC Times Electric Co., Ltd. (HKG:3898) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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

What Is Zhuzhou CRRC Times Electric's Debt?

You can click the graphic below for the historical numbers, but it shows that Zhuzhou CRRC Times Electric had CN¥137.5m of debt in March 2025, down from CN¥1.34b, one year before. But on the other hand it also has CN¥15.1b in cash, leading to a CN¥15.0b net cash position.

How Strong Is Zhuzhou CRRC Times Electric's Balance Sheet?

The latest balance sheet data shows that Zhuzhou CRRC Times Electric had liabilities of CN¥20.5b due within a year, and liabilities of CN¥1.41b falling due after that. Offsetting this, it had CN¥15.1b in cash and CN¥20.4b in receivables that were due within 12 months. So it actually has CN¥13.6b more liquid assets than total liabilities.

This excess liquidity suggests that Zhuzhou CRRC Times Electric 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, Zhuzhou CRRC Times Electric boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Zhuzhou CRRC Times Electric

In addition to that, we're happy to report that Zhuzhou CRRC Times Electric has boosted its EBIT by 38%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Zhuzhou CRRC Times Electric can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Zhuzhou CRRC Times Electric 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. In the last three years, Zhuzhou CRRC Times Electric created free cash flow amounting to 19% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Zhuzhou CRRC Times Electric has net cash of CN¥15.0b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 38% over the last year. So we don't think Zhuzhou CRRC Times Electric's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Zhuzhou CRRC Times Electric you should be aware of.

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.