Chinese People Holdings (HKG:681) Has A Rock Solid Balance Sheet

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Chinese People Holdings Company Limited (HKG:681) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Chinese People Holdings Carry?

As you can see below, at the end of June 2025, Chinese People Holdings had CN¥77.9m of debt, up from CN¥71.7m a year ago. Click the image for more detail. However, it does have CN¥741.4m in cash offsetting this, leading to net cash of CN¥663.6m.

How Strong Is Chinese People Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Chinese People Holdings had liabilities of CN¥526.5m due within 12 months and liabilities of CN¥59.6m due beyond that. Offsetting these obligations, it had cash of CN¥741.4m as well as receivables valued at CN¥182.6m due within 12 months. So it actually has CN¥337.8m more liquid assets than total liabilities.

This surplus strongly suggests that Chinese People Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Chinese People Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Chinese People Holdings

The modesty of its debt load may become crucial for Chinese People Holdings if management cannot prevent a repeat of the 23% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Chinese People Holdings will need earnings to service that debt. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Chinese People Holdings 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. During the last three years, Chinese People Holdings generated free cash flow amounting to a very robust 97% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, the bottom line is that Chinese People Holdings has net cash of CN¥663.6m and plenty of liquid assets. The cherry on top was that in converted 97% of that EBIT to free cash flow, bringing in CN¥17m. So is Chinese People Holdings'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 Chinese People Holdings has 3 warning signs (and 1 which shouldn't be ignored) we think 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.