Does ANTA Sports Products (HKG:2020) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that ANTA Sports Products Limited (HKG:2020) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ANTA Sports Products

What Is ANTA Sports Products's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 ANTA Sports Products had debt of CN¥15.4b, up from CN¥13.8b in one year. However, its balance sheet shows it holds CN¥30.2b in cash, so it actually has CN¥14.7b net cash.

A Look At ANTA Sports Products' Liabilities

Zooming in on the latest balance sheet data, we can see that ANTA Sports Products had liabilities of CN¥27.4b due within 12 months and liabilities of CN¥8.20b due beyond that. Offsetting these obligations, it had cash of CN¥30.2b as well as receivables valued at CN¥3.42b due within 12 months. So it has liabilities totalling CN¥1.95b more than its cash and near-term receivables, combined.

Having regard to ANTA Sports Products' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CN¥213.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, ANTA Sports Products boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, ANTA Sports Products grew its EBIT by 26% in the last year, and that should make it easier to pay down debt, going forward. 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 ANTA Sports Products 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While ANTA Sports Products 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. Happily for any shareholders, ANTA Sports Products actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that ANTA Sports Products has CN¥14.7b in net cash. And it impressed us with free cash flow of CN¥16b, being 101% of its EBIT. So is ANTA Sports Products's debt a risk? It doesn't seem so to us. We'd be very excited to see if ANTA Sports Products insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.