Fujing Holdings (HKG:2497) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Fujing Holdings Co., Limited (HKG:2497) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Fujing Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Fujing Holdings had CN¥143.9m of debt, an increase on CN¥15.0m, over one year. However, its balance sheet shows it holds CN¥285.1m in cash, so it actually has CN¥141.2m net cash.

A Look At Fujing Holdings' Liabilities

According to the last reported balance sheet, Fujing Holdings had liabilities of CN¥180.5m due within 12 months, and liabilities of CN¥20.1m due beyond 12 months. On the other hand, it had cash of CN¥285.1m and CN¥60.3m worth of receivables due within a year. So it can boast CN¥144.7m more liquid assets than total liabilities.

This surplus strongly suggests that Fujing Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Fujing Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Fujing Holdings

On top of that, Fujing Holdings grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Fujing Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Fujing 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. In the last three years, Fujing Holdings created free cash flow amounting to 16% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Fujing Holdings has net cash of CN¥141.2m, as well as more liquid assets than liabilities. And we liked the look of last year's 36% year-on-year EBIT growth. So is Fujing Holdings's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 3 warning signs for Fujing Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.