Does Lisi Group (Holdings) (HKG:526) Have A Healthy Balance Sheet?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Lisi Group (Holdings) Limited (HKG:526) does carry debt. But is this debt a concern to shareholders?

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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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Lisi Group (Holdings)'s Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Lisi Group (Holdings) had CN¥795.2m of debt, an increase on CN¥665.0m, over one year. But on the other hand it also has CN¥987.1m in cash, leading to a CN¥191.9m net cash position.

A Look At Lisi Group (Holdings)'s Liabilities

Zooming in on the latest balance sheet data, we can see that Lisi Group (Holdings) had liabilities of CN¥1.62b due within 12 months and liabilities of CN¥95.2m due beyond that. Offsetting these obligations, it had cash of CN¥987.1m as well as receivables valued at CN¥1.11b due within 12 months. So it can boast CN¥384.5m more liquid assets than total liabilities.

This surplus strongly suggests that Lisi Group (Holdings) has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Lisi Group (Holdings) boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Lisi Group (Holdings)

It is just as well that Lisi Group (Holdings)'s load is not too heavy, because its EBIT was down 22% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Lisi Group (Holdings) will need earnings to service that debt. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Lisi Group (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. Looking at the most recent three years, Lisi Group (Holdings) recorded free cash flow of 29% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Lisi Group (Holdings) has CN¥191.9m in net cash and a decent-looking balance sheet. So we are not troubled with Lisi Group (Holdings)'s debt use. 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 example, we've discovered 3 warning signs for Lisi Group (Holdings) that you should be aware of before investing here.

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.