Is Fosun International (HKG:656) Using Debt Sensibly?

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.' 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. As with many other companies Fosun International Limited (HKG:656) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Fosun International's Net Debt?

The chart below, which you can click on for greater detail, shows that Fosun International had CN¥222.1b in debt in June 2025; about the same as the year before. However, it does have CN¥111.5b in cash offsetting this, leading to net debt of about CN¥110.6b.

A Look At Fosun International's Liabilities

According to the last reported balance sheet, Fosun International had liabilities of CN¥252.2b due within 12 months, and liabilities of CN¥286.1b due beyond 12 months. On the other hand, it had cash of CN¥111.5b and CN¥41.4b worth of receivables due within a year. So its liabilities total CN¥385.4b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CN¥38.6b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Fosun International would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Fosun International can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Fosun International

Over 12 months, Fosun International made a loss at the EBIT level, and saw its revenue drop to CN¥182b, which is a fall of 8.7%. We would much prefer see growth.

Caveat Emptor

Importantly, Fosun International had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping CN¥7.2b. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost CN¥4.4b in the last year. So we're not very excited about owning this stock. Its too risky for us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Fosun International that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.