Here's Why Skyworth Group (HKG:751) Has A Meaningful Debt Burden

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. We can see that Skyworth Group Limited (HKG:751) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Skyworth Group Carry?

You can click the graphic below for the historical numbers, but it shows that Skyworth Group had CN¥851.3m of debt in March 2025, down from CN¥19.0b, one year before. But on the other hand it also has CN¥3.24b in cash, leading to a CN¥2.39b net cash position.

How Strong Is Skyworth Group's Balance Sheet?

According to the last reported balance sheet, Skyworth Group had liabilities of CN¥4.05b due within 12 months, and liabilities of CN¥255.5m due beyond 12 months. Offsetting these obligations, it had cash of CN¥3.24b as well as receivables valued at CN¥2.81b due within 12 months. So it actually has CN¥1.74b more liquid assets than total liabilities.

This surplus liquidity suggests that Skyworth Group's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Skyworth Group boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Skyworth Group

Shareholders should be aware that Skyworth Group's EBIT was down 50% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Skyworth Group 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Skyworth Group 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, Skyworth Group reported free cash flow worth 3.0% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Skyworth Group has net cash of CN¥2.39b, as well as more liquid assets than liabilities. So although we see some areas for improvement, we're not too worried about Skyworth Group's balance sheet. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Skyworth Group has 1 warning sign we think you should be aware of.

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.