Auntea Jenny (Shanghai) Industrial (HKG:2589) Seems To Use Debt Rather Sparingly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Auntea Jenny (Shanghai) Industrial Co., Ltd. (HKG:2589) does have debt on its balance sheet. 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Auntea Jenny (Shanghai) Industrial's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Auntea Jenny (Shanghai) Industrial had CN¥29.8m of debt, an increase on none, over one year. However, it does have CN¥1.77b in cash offsetting this, leading to net cash of CN¥1.74b.

How Strong Is Auntea Jenny (Shanghai) Industrial's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Auntea Jenny (Shanghai) Industrial had liabilities of CN¥669.5m due within 12 months and liabilities of CN¥38.4m due beyond that. On the other hand, it had cash of CN¥1.77b and CN¥2.37m worth of receivables due within a year. So it actually has CN¥1.06b more liquid assets than total liabilities.

This surplus suggests that Auntea Jenny (Shanghai) Industrial has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Auntea Jenny (Shanghai) Industrial has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Auntea Jenny (Shanghai) Industrial

Fortunately, Auntea Jenny (Shanghai) Industrial grew its EBIT by 8.4% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Auntea Jenny (Shanghai) Industrial'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. While Auntea Jenny (Shanghai) Industrial 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. Over the last three years, Auntea Jenny (Shanghai) Industrial actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Auntea Jenny (Shanghai) Industrial has net cash of CN¥1.74b, as well as more liquid assets than liabilities. The cherry on top was that in converted 110% of that EBIT to free cash flow, bringing in CN¥467m. So is Auntea Jenny (Shanghai) Industrial's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Auntea Jenny (Shanghai) Industrial, you may well want to click here to check an interactive graph of its earnings per share history.

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.