JH Educational Technology (HKG:1935) Seems To Use Debt Rather Sparingly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that JH Educational Technology INC. (HKG:1935) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. 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.

What Is JH Educational Technology's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 JH Educational Technology had CN¥598.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds CN¥1.41b in cash, so it actually has CN¥815.8m net cash.

How Strong Is JH Educational Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that JH Educational Technology had liabilities of CN¥390.7m due within 12 months and liabilities of CN¥423.8m due beyond that. On the other hand, it had cash of CN¥1.41b and CN¥853.0k worth of receivables due within a year. So it actually has CN¥600.1m more liquid assets than total liabilities.

This surplus liquidity suggests that JH Educational Technology's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, JH Educational Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for JH Educational Technology

But the other side of the story is that JH Educational Technology saw its EBIT decline by 7.6% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. The balance sheet is clearly the area to focus on when you are analysing debt. But it is JH Educational Technology'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. JH Educational Technology 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 most recent three years, JH Educational Technology recorded free cash flow worth 71% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 JH Educational Technology has CN¥815.8m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of -CN¥110m, being 71% of its EBIT. So is JH Educational Technology's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - JH Educational Technology 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.