Does Q P Group Holdings (HKG:1412) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Q P Group Holdings Limited (HKG:1412) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've discovered 3 warning signs about Q P Group Holdings. View them for free.

When Is Debt Dangerous?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Q P Group Holdings Carry?

As you can see below, at the end of December 2024, Q P Group Holdings had HK$50.2m of debt, up from HK$47.9m a year ago. Click the image for more detail. But on the other hand it also has HK$310.7m in cash, leading to a HK$260.5m net cash position.

A Look At Q P Group Holdings' Liabilities

We can see from the most recent balance sheet that Q P Group Holdings had liabilities of HK$272.7m falling due within a year, and liabilities of HK$15.9m due beyond that. On the other hand, it had cash of HK$310.7m and HK$154.8m worth of receivables due within a year. So it can boast HK$176.8m more liquid assets than total liabilities.

This excess liquidity suggests that Q P Group Holdings is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Q P Group Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Q P Group Holdings

In addition to that, we're happy to report that Q P Group Holdings has boosted its EBIT by 72%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Q P Group Holdings's earnings that will influence how the balance sheet holds up in the future. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Q P 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, Q P Group Holdings recorded free cash flow worth a fulsome 92% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Q P Group Holdings has net cash of HK$260.5m, as well as more liquid assets than liabilities. The cherry on top was that in converted 92% of that EBIT to free cash flow, bringing in HK$129m. When it comes to Q P Group Holdings's debt, we sufficiently relaxed that our mind turns to the jacuzzi. 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. Be aware that Q P Group Holdings is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.