Does Haidilao International Holding (HKG:6862) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Haidilao International Holding Ltd. (HKG:6862) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Haidilao International Holding's Net Debt?

The image below, which you can click on for greater detail, shows that Haidilao International Holding had debt of CN¥2.14b at the end of June 2025, a reduction from CN¥2.35b over a year. But it also has CN¥9.07b in cash to offset that, meaning it has CN¥6.93b net cash.

How Healthy Is Haidilao International Holding's Balance Sheet?

According to the last reported balance sheet, Haidilao International Holding had liabilities of CN¥8.55b due within 12 months, and liabilities of CN¥3.00b due beyond 12 months. On the other hand, it had cash of CN¥9.07b and CN¥897.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥1.58b.

Since publicly traded Haidilao International Holding shares are worth a total of CN¥65.5b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Haidilao International Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Haidilao International Holding

On the other hand, Haidilao International Holding saw its EBIT drop by 2.3% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Haidilao International Holding's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Haidilao International Holding 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, Haidilao International Holding 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 Haidilao International Holding has CN¥6.93b in net cash. The cherry on top was that in converted 128% of that EBIT to free cash flow, bringing in CN¥5.0b. So we don't think Haidilao International Holding's use of debt is risky. 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. Be aware that Haidilao International Holding is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.