Is Xtep International Holdings (HKG:1368) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 can see that Xtep International Holdings Limited (HKG:1368) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Xtep International Holdings's Net Debt?

As you can see below, Xtep International Holdings had CN¥2.35b of debt at June 2025, down from CN¥3.03b a year prior. But on the other hand it also has CN¥3.75b in cash, leading to a CN¥1.39b net cash position.

How Healthy Is Xtep International Holdings' Balance Sheet?

The latest balance sheet data shows that Xtep International Holdings had liabilities of CN¥5.77b due within a year, and liabilities of CN¥1.52b falling due after that. Offsetting these obligations, it had cash of CN¥3.75b as well as receivables valued at CN¥5.06b due within 12 months. So it can boast CN¥1.51b more liquid assets than total liabilities.

This short term liquidity is a sign that Xtep International Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Xtep International Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Xtep International Holdings

Fortunately, Xtep International Holdings grew its EBIT by 3.9% in the last year, making that debt load look even more manageable. 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 Xtep International Holdings'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Xtep International Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Xtep International Holdings produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Xtep International Holdings has CN¥1.39b in net cash and a decent-looking balance sheet. So is Xtep International Holdings's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Xtep International Holdings that 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.