Is TravelSky Technology (HKG:696) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, TravelSky Technology Limited (HKG:696) does carry debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does TravelSky Technology Carry?

As you can see below, TravelSky Technology had CN¥1.40b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds CN¥14.2b in cash, so it actually has CN¥12.8b net cash.

A Look At TravelSky Technology's Liabilities

Zooming in on the latest balance sheet data, we can see that TravelSky Technology had liabilities of CN¥7.71b due within 12 months and liabilities of CN¥737.9m due beyond that. On the other hand, it had cash of CN¥14.2b and CN¥8.48b worth of receivables due within a year. So it actually has CN¥14.3b more liquid assets than total liabilities.

This luscious liquidity implies that TravelSky Technology's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that TravelSky Technology has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for TravelSky Technology

In addition to that, we're happy to report that TravelSky Technology has boosted its EBIT by 35%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine TravelSky Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. TravelSky 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, TravelSky Technology recorded free cash flow worth 68% 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 TravelSky Technology has CN¥12.8b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 35% over the last year. The bottom line is that we do not find TravelSky Technology's debt levels at all concerning. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for TravelSky Technology 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.